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1
UNITED STATES
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 Year Ended Commission File Number
December 31, 2000 1-8319
GATX CAPITAL CORPORATION
Incorporated in the IRS Employer Identification Number
State of Delaware 94-1661392
Four Embarcadero Center
San Francisco, CA 94111
415.955.3200
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No
All Common Stock of Registrant is held by GATX Financial Services, Inc.
(A wholly-owned subsidiary of GATX Corporation).
As of March 30, 2001, Registrant has outstanding 1,031,250 shares
of $1 par value Common Stock.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(a)
and (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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Table of Contents
Page
----
Part I
Item 1. Business.................................................................... 1
Item 2. Properties.................................................................. 1
Item 3. Legal Proceedings........................................................... 1
Item 4. Submission of Matters to a Vote of Security Holders......................... 2
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....... 3
Item 6. Selected Financial Data..................................................... 3
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 3
Item 8. Financial Statements and Supplementary Data................................. 7
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 25
Part III
Item 10. Directors and Executive Officers of the Registrant......................... 25
Item 11. Executive Compensation..................................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 25
Item 13. Certain Relationships and Related Transactions............................. 25
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 25
Signatures........................................................................... 27
Exhibits............................................................................. 28
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DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
-------- -----------------
Registration Statement on Form S-1 Part IV Item 14(a)3
filed with the Commission on
December 23, 1981 (file No. 2-75467)
Amendment No. 1 to Form S-1 filed Part IV Item 14(a)3
with the Commission on
February 23, 1982
Amendment No. 2 to Form S-1 filed Part IV Item 14(a)3
with the Commission on March 2, 1982
Form 10-K for the Year Ended Part IV Item 14(a)3
December 31, 1982 filed with the
Commission on March 28, 1983
Form 10-K for the Year Ended Part IV Item 14(a)3
December 31, 1990 filed with the
Commission on March 30, 1991
Form 10-K for the Year Ended Part IV Item 14(a)3
December 31, 1992 filed with the
Commission on March 31, 1993
Form 10-K for the Year Ended Part IV Item 14(a)3
December 31, 1994 filed with the
Commission on March 27, 1995
Form 10-K for the Year Ended Part IV Item 14(a)3
December 31, 1995 filed with the
Commission on March 28, 1996
Form 10-Q for the Quarter Ended Part IV Item 14(a)3
September 30, 1998 filed with the
Commission on November 16, 1998
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PART I
Item 1. Business
GATX Capital Corporation and its subsidiaries ("GATX Capital" or the "Company")
provides asset-based financing, 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, warehouse, production,
and marine industries. These financings, which are held within the Company'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 and warrants of non-public start-up companies. For its transaction
structuring and portfolio management services, the Company receives fees when
the transaction is completed, when an asset is remarketed, and/or on an ongoing
basis.
The Company competes with captive leasing companies, leasing subsidiaries of
commercial banks, independent leasing companies, lease brokers, investment
bankers, and financing arms of equipment manufacturers.
Item 2. Properties
The Company leases all of its office space and owns no materially important
physical properties other than those related directly to its investment
portfolio. The Company's principal offices are rented under a twelve year lease
expiring in 2003.
Item 3. Legal Proceedings
The Company is a party to actions arising from the issuance by the Federal
Aviation Administration (the "FAA") in January 1996 of Airworthiness Directive
96-01-03 (the "AD"). The AD had the effect of significantly reducing the amount
of freight that ten 747 aircraft could carry. These aircraft (the "Affected
Aircraft") were modified from passenger to freighter configuration by
GATX/Airlog Company ("Airlog"), a California general partnership. A subsidiary
of the Company, GATX Aircraft Corporation, is a partner in Airlog. The
modifications were carried out between 1988 and 1994 by subcontractors of Airlog
under authority of Supplemental Type Certificates ("STCs") issued by the FAA in
1987 pursuant to a design approved by the FAA. In the AD, the FAA stated that
the STCs were issued "in error."
On July 11, 1996, Airlog 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) with
respect to three Affected Aircraft seeking a declaration that neither Airlog nor
the Company had any liability to Evergreen as a result of the issuance of the
AD. Evergreen filed an answer and counterclaim on August 1, 1996, which asserted
that Airlog and the Company were liable to it under a number of legal theories
in connection with the application of the AD to its three Affected Aircraft.
Evergreen alleged approximately $160 million in compensatory damages and also
sought unspecified punitive damages.
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, the Company, Airlog Management Corp., and
others asserting that Airlog and the Company were liable to it under a number of
legal theories in connection with the application of the AD to two Affected
Aircraft owned by AIA. The Complaint sought damages (to be trebled under one
count of the complaint) of an unspecified amount relating to lost revenues, lost
profits, denied access to 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
asked in the alternative for a rescission of AIA's agreements with Airlog, 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 AD. The AIA claim was
assigned to Kalitta Air ("Kalitta Air"). Kalitta Air alleged $480 million in
compensatory damages, trebling of such damages pursuant to 18 U.S.C. 1964,
prejudgment interest and unspecified punitive damages.
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 the
Company, Airlog, an officer of the Company and others with respect to one
Affected Aircraft it leased and subsequently purchased from a trust for the
benefit of an affiliate of Airlog. This action asserted causes of action in
fraud and deceit, negligent misrepresentation, breach of contract and negligence
and sought damages in excess of $25 million together with interest, costs,
attorneys' fees and unspecified punitive damages.
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On February 25, 1998, The Bank of New York ("BNY") filed an action, as purported
beneficial owner of one Affected Aircraft, in the United States District Court
for the Northern District of California (No. C98-0385) against Airlog, the
Company and others. This aircraft was originally converted by Airlog for
Evergreen. This action sought declaratory relief and asserted claims for breach
of contract, intentional misrepresentation, nondisclosure of known facts,
negligence, negligent misrepresentation and unfair competition. BNY alleged
approximately $19 million in compensatory damages, prejudgment interest and
unspecified punitive damages.
On June 15, 1998, General Electric Capital and PALC II, Inc. (collectively
"GECC") filed a complaint in the United States District Court for the Northern
District of California (C98-2387) against Airlog, the Company, and others with
respect to three Affected Aircraft. These aircraft were modified in 1991 and
1992. GECC asserted that the defendants were liable to it under a number of
legal theories in connection with the application of the AD to the three
Affected Aircraft owned by GECC. GECC alleged approximately $100 million in
compensatory damages, trebling of such damages pursuant to 18 U.S.C. 1964,
prejudgment interest and unspecified punitive damages.
Airlog, the Company, and others brought an action in the United States District
Court for the Northern District of California against Pemco Aeroplex, Inc.
(PEMCO) (C97-2484WHO), a contractor for Airlog which had obtained the STCs and
modified certain of the Affected Aircraft, seeking damages, costs and expenses
in connection with the resolution of the concerns of the FAA as expressed in the
AD, repairing the Affected Aircraft, defending against the litigation involving
the plaintiffs arising from the Affected Aircraft, paying any judgments against
plaintiffs that may have been entered in the litigation and attorneys' fees. In
February 2000, Airlog stipulated to the dismissal of several of the causes of
action against PEMCO. The claims for contribution and damages of Airlog, the
Company and others against PEMCO were barred as a result of the settlements that
PEMCO reached with Evergreen and Kalitta. Consequently, this action has been
dismissed.
As a result of the actions discussed above, on July 24, 1998 Airlog filed an
action against the United States of America (C98-1029) in United States District
Court for the Western District of Washington to recover losses
suffered by Airlog as a result of the alleged negligence of the FAA in the
development and approval of the design to convert the Affected Aircraft from
passenger to freighter configuration. The complaint sought damages in excess of
$8.3 million representing the expenses incurred by Airlog in responding to the
AD and legal fees and costs incurred by Airlog in defending the litigation
described above. On August 27, 1999, the Court dismissed Airlog's action against
the United States. This dismissal was based on the Court's determination that
the governmental discretionary function exception to the Federal Tort Claims Act
was applicable to Airlog's claim. Airlog appealed that decision to the Circuit
Court of Appeals for the Ninth Circuit. On December 13, 2000, the Court of
Appeals affirmed the judgment of the District Court. Airlog has filed a petition
with the Court of Appeals seeking en banc review of the ruling of the court.
Elsinore Aerospace Services LP ("Elsinore") was a defendant in the AIA suit
against Airlog, the Company and others. Elsinore cross-claimed against Airlog
and brought a third-party claim against the Company for indemnification and
defense under its contract with Airlog. Under this contract, Elsinore was to
develop engineering, design and analysis necessary to develop Airlog's existing
747-100 STC's into STC's for converting 747-200 aircraft from passenger to
freighter configuration. One Affected Aircraft was converted for AIA under STC's
obtained pursuant to the Elsinore contract. On August 11, 2000, the United
States District Court for the Northern District of California granted Elsinore's
motion for summary judgment against Airlog on this cross-claim. The Company and
Airlog believe the Court's ruling is in error both as a matter of law and
application of the facts of this claim and intend to appeal the Court's ruling.
Trial of the claims of Evergreen and Kalitta Air with respect to five aircraft
began January 8, 2001 and concluded March 1. Prior to trial, the Company settled
with Tower, BNY, and GECC, and during the trial with Evergreen in each case for
undisclosed amounts. At the conclusion of the trial, the jury awarded Kalitta
Air a total of $30.3 million for replacement of its two Affected Aircraft as
damages for breach of contract, and $47.5 million plus interest for lost profits
as damages for fraud by omission. Under instructions provided by the court to
the jury, Kalitta Air is entitled to the higher of the two amounts. The net
after-tax impact of the resolution of the five Airlog cases, including
Evergreen, is $97.6 million. This is the Company's maximum liability for all
Airlog-related matters, and does not reflect the fact that the Company will
aggressively pursue all means of loss recovery including appeals and insurance
coverage.
Item 4. Submission of Matters to a Vote of Security Holders
Omitted under provisions of the reduced disclosure format.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Not applicable. All common stock of the Registrant is held by GATX Financial
Services, Inc. (a wholly-owned subsidiary of GATX Corporation). Information
regarding dividends is shown in the consolidated statements of changes in
stockholder's equity and discussed in the notes accompanying the consolidated
financial statements, which are included in Item 8.
Item 6. Selected Financial Data
Omitted under provisions of the reduced disclosure format.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GATX Capital is a diversified international financial services company, which
provides asset-based financing for transportation, industrial and information
technology equipment; financing for venture-backed and high-technology
companies; management of assets for third parties; and transaction structuring,
residual guarantee and asset remarketing services. As investor, the Company
invests in a variety of assets including commercial aircraft and commercial
aircraft engines, locomotives and railcars, marine equipment, oil and steel
production equipment, personal computers, client servers, telecom related assets
and financing for venture-backed and high-technology companies. As manager, the
Company combines its asset and industry expertise with its financial structuring
expertise to optimize the value of lease portfolios that it manages for major
industrial, insurance and financial services companies. As transaction arranger,
the Company brings appropriate parties together, leveraging knowledge and
relationships from its investing and managing activities, to maximize value for
all involved parties. Frequently GATX Capital's roles of investor, manager and
arranger are intertwined as the Company invests alongside its partners in
ventures that the Company also manages. GATX Capital is a wholly-owned
subsidiary of GATX Corporation.
The Company's commercial aircraft and rail investment activities are focused on
operating leasing and maximizing the value of owned and managed operating lease
fleets. Marine, oil and steel production, and other industrial and
transportation investments are typically individual transactions that are longer
term in nature. Investments in personal computers, client servers and other
technology-related investments are typically shorter term due to the rapid pace
of technological advancements. These investments typically provide
customers with financing for technology, telecommunications, biotechnology and
other similar productivity-enhancing capital expenditures.
In addition to investing activities, the Company was a value-added reseller of
technology equipment and services through June 30, 1999, at which time the
Company sold this business segment. Accordingly, results from the technology
equipment sales and service segment are shown as discontinued operations with
prior year activity reclassified into one line for purposes of reporting
consolidated income. All assets and liabilities relating to the technology
equipment sales and service segment were removed from the balance sheet in
connection with the sale.
RESULTS OF OPERATIONS
The Company recorded a one-time $97.6 million ($160.5 million net of a $62.9
million tax effect) provision for litigation in 2000 for settlements and
judgments arising from litigation related to the Company's interest in a
partnership that had converted certain aircraft from passenger to freighter
configuration in prior periods. This charge is discussed in greater detail in
Item 3 (Legal Proceedings), above. Excluding the effect of this litigation
charge, GATX Capital achieved results during 2000 as follows:
> Pro-forma net income, excluding the litigation charge, of $78.6
million was 16% higher than in 1999;
> New investment of $1.5 billion was a new GATX Capital record,
growing 27% from 1999;
> Investments totaled $3.7 billion at the end of the year, up 27% from
the end of 1999.
These results reflect both growth in traditional activities and contributions
from platforms established in recent years. Newer business platforms include
Rolls-Royce & Partners Finance Ltd., in which the Company acquired a 50%
interest in 1998; Meier Mitchell, the Company's former venture finance partner,
which the Company acquired in 1999 and expanded in 2000; GATX Flightlease
Aircraft partnerships formed in 1999 and 2000; and the GATX Telecom Investors
partnerships formed in 1998 and 1999.
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2000 compared to 1999
Excluding the effect of the $97.6 million (net of tax) provision for litigation,
pro-forma income from continuing operations increased to $78.6 million from
$71.6 million in 1999, reflecting increases in income from investments, offset
by decreases in income from management activities and an increase in selling,
general and administrative expenses.
Income from investments increased due to higher average investment balances and
an increase in income from the sale of securities, offset by a decrease in gain
on sale of assets.
Financing and leveraged lease income increased a combined 10% over 1999 due
primarily to the impact of new leases. Operating lease margin, the excess of
operating lease income over operating lease expense, increased 53% compared to
1999, reflecting a 39% increase in average net operating lease balances from
1999 to 2000.
Equity earnings from investments in joint ventures increased 25% to $75.9
million in 2000 due to income generated by new and existing joint ventures.
Investments in joint ventures increased to $866.8 million at the end of the
year, 30% greater than at the end of 1999. The increase in investments in joint
ventures reflects continued growth in partnering activities, including new joint
ventures with Flightlease, SAir's leasing subsidiary, and AMA Shipping. In
addition to these new joint ventures, pre-existing joint ventures grew during
the year as well. At the end of 2000, GATX Capital's share of assets in joint
ventures in which the Company has an investment totaled $1.9 billion, up 18%
from the end of 1999.
Earnings from owned assets also include the gain recorded upon disposition of
the asset. Gains on the sale of assets, which do not necessarily occur evenly
between periods, decreased $6.6 million in 2000.
Interest income increased $19.3 million in 2000, reflecting higher average loan
balances.
Income from the sale of securities, generally related to shares received upon
exercise of warrants received in connection with financing of non-public,
start-up companies, totaled $52.3 million in 2000, an increase of $37.6 million
over 1999.
Higher average borrowing balances and an increase in borrowing rates drove
interest expense higher in 2000. Average debt balances were approximately $634
million higher in 2000, reflecting the Company's need to fund the growth in
investments.
The provision for losses on investments is derived from the Company's estimate
of losses inherent in the portfolio based on a review of credit, collateral and
market risks. The allowance for losses on investments decreased $20.4 million in
2000 as a result of a $16.2 million provision for loan and lease losses offset
by net charge-offs of $36.6 million. The total provision for losses on
investments in 2000 of $21.1 million included $5.0 million of asset impairment
losses. The net charge-offs against the allowance primarily related to leases
related to the technology sector, commercial aircraft, and a steel production
facility.
Income from management and transaction arranging activities is included in fee
income, which decreased $7.9 million in 2000. As compensation for managing lease
portfolios, the Company typically receives recurring management fees over the
lease terms and a performance-based remarketing fee upon disposing of the leased
assets. The Company also earns performance-based remarketing fees for
remarketing assets it does not manage. The decrease in income from management
activities in 2000 is primarily due to a decrease in fees earned from
remarketing assets under management, partially offset by an increase in
recurring management fees related to the growth in the Company's managed
investments. Although they do not necessarily occur evenly between periods,
performance-based remarketing fees are often a significant component of the
Company's total compensation as manager of portfolios.
Selling, general and administrative expenses increased in 2000 as a result of a
significant increase in business activity, as evidenced by the Company's record
year of new investment, and the expansion of the venture finance platform.
Headcount at the end of 2000 was 31% higher than at the end of 1999.
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CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
During 2000 the Company invested a record $1.5 billion. This new investment was
funded with the issuance of $692.6 million of notes, $734.8 million of
nonrecourse debt borrowings and a portion of the $813.8 million of cash
generated from the recovery of investments and from operations. Cash generated
from the recovery of investments and from operations was also used to repay
$319.0 million of senior term notes and $629.2 million of nonrecourse
borrowings. Historically dividends have been paid on the Company's common stock
at the rate of 50% of net income. Inasmuch as the provision for litigation in
2000 more than offset the Company's annual earnings, no dividends were declared
in 2000.
In January 2000, the Company filed a $1.015 billion Series G shelf registration
that included $15 million of unused capacity from the previous Series F
registration. The Company issued $600 million of notes under the Series G
registration in 2000, including a $350 million bond offering. As of December 31,
2000, the Company had remaining unused borrowing capacity of $415 million of
notes under its Series G shelf registration, $126.4 million under its commercial
paper and bankers' acceptance credit agreements and $35.0 million under a
stand-alone bank facility maintained by one of the Company's subsidiaries.
During 1999 the Company issued the remaining $162.0 million of notes under its
Series E shelf registration and filed a $500.0 million Series F shelf
registration. The Company issued an additional $485.0 million of notes under the
Series F shelf registration, including a $350.0 million bond offering.
The Company's commercial paper and bankers' acceptances are backed by credit
agreements from a syndicate of domestic and international commercial banks. The
Company's senior unsecured notes are rated BBB+ by Standard and Poor's and Baa2
by Moody's Investors Service.
Certain lease transactions are financed by obtaining nonrecourse loans equal to
the present value of some or all of the rental stream. The interest rates used
to discount the rentals are based on the credit quality of the lessee and the
size and term of the lease. The Company uses a wide variety of nonrecourse
lenders to ensure adequate and reliable access to the credit markets.
During 2000, primarily as a result of the dramatic growth in the Company's
investment balances and the borrowings needed to fund that growth, total debt
financing increased $647.7 million. At December 31, 2000, the Company could
borrow an additional $250 million and still meet the 4.5:1 leverage ratio as
defined in its bank credit agreements.
As of December 31, 2000, the Company has approved unfunded transactions totaling
$2.1 billion, of which $1.2 billion is expected to fund in 2001 and the
remaining $0.9 billion thereafter. Once approved for funding, a transaction may
not be completed for various reasons, or the investment may be shared with
partners or sold.
The Company's capital structure includes both fixed and floating rate debt. The
Company seeks to provide a stable margin over its cost of funds by managing the
relationship of its fixed and floating rate lease and loan investments to its
fixed and floating rate borrowings. In order to meet this objective, derivative
financial instruments, primarily interest rate swaps, are used to modify the
interest characteristics of the Company's debt. The Company manages the credit
risk of counterparties by dealing only with institutions it considers
financially sound and by avoiding concentrations of risk with a single
counterparty.
FORWARD-LOOKING STATEMENTS
Many economists believe that the U.S. economy is entering a recessionary
environment. The Company's prospective results would not be immune from the
effects thereof if there were significant changes in demand for its services or
assets provided. Certain statements in the Management's Discussion and Analysis
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
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, including those discussed elsewhere in
this report, that could cause actual results to differ materially from those
projected.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various market risks that result from changes in
interest rates, currency exchange rates, and changes in prices of equity
securities. To manage these risks, the Company, pursuant to pre-established and
pre-authorized policies, may enter into certain derivative transactions,
predominantly interest rate and foreign currency swaps, and forward sale
agreements.
The Company only enters into interest rate swaps and other derivative
instruments to economically hedge market risk; it does not hold or issue
derivative financial instruments for speculative purposes.
The Company's interest expense is affected by changes in interest rates as a
result of its use of variable rate debt instruments, including commercial paper
and other floating rate debt. Based on the Company's variable rate debt at
December 31, 2000, if market rates were to change by a hypothetical 100 basis
points, interest expense would change by approximately $9.5 million in 2001.
The Company seeks to minimize the impact of foreign currency fluctuations by
hedging transactional exposures with foreign currency hedges. Based on 2000's
reported operating results, changes in these currency exchange rates would be
immaterial to the Company's reported earnings in 2001.
The interpretation and analysis of the results from the hypothetical changes to
interest rates and currency exchange rates should not be considered without also
considering offsetting changes that arise from a diversified portfolio. For
example, the effects of interest rate changes on floating-rate debt would be
somewhat offset by the effects on floating-rate assets.
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Item 8. Financial Statements and Supplementary Data
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, (in thousands) 2000 1999 1998
-------------- -------------- --------------
REVENUES:
Lease income $450,816 $330,471 $267,966
Equity earnings from investments in joint ventures 75,907 60,663 45,850
Interest 60,094 40,789 34,110
Gain on sale of assets 53,431 60,062 69,423
Gain on sale of securities 52,307 14,703 2,356
Fees 23,934 31,873 38,832
Other 8,235 6,301 7,915
-------------- -------------- --------------
724,724 544,862 466,452
-------------- -------------- --------------
EXPENSES:
Operating leases 260,977 185,171 139,160
Interest 176,633 115,031 110,187
Selling, general & administrative 129,260 108,117 77,439
Provision for losses on investments 21,140 11,001 11,029
Other 7,427 4,794 5,479
Provision for litigation 160,500 - -
-------------- -------------- --------------
755,937 424,114 343,294
-------------- -------------- --------------
(Loss) income from continuing operations before
income taxes (31,213) 120,748 123,158
(Benefit) provision for income taxes (12,298) 49,139 51,267
-------------- -------------- --------------
(LOSS) INCOME FROM CONTINUING OPERATIONS: (18,915) 71,609 71,891
DISCONTINUED OPERATIONS:
Loss from discontinued operations,
net of income tax benefits of $2,398 and $743 in
1999 and 1998, respectively - (5,112) (12,574)
Gain on sale of discontinued operations,
net of income tax benefits of $1,820 - 1,094 -
-------------- -------------- --------------
NET (LOSS) INCOME $ (18,915) $ 67,591 $ 59,317
============== ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
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GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Balance as of December 31, (in thousands) 2000 1999
--------------- ---------------
ASSETS:
Cash and cash equivalents $ 115,436 $ 45,817
Investments:
Direct financing leases 663,581 477,739
Leveraged leases 223,515 170,066
Operating lease equipment-
net of depreciation 1,133,061 960,123
Secured loans 634,075 358,001
Investments in joint ventures 866,832 667,648
Assets held for sale or lease 38,483 36,993
Other investments 88,938 197,096
Investment in future residuals 5,226 14,538
Allowance for losses on investments (89,401) (109,771)
--------------- ---------------
Total investments 3,564,310 2,772,433
--------------- ---------------
Due from GATX Corporation 73,677 46,705
Other assets 112,153 76,736
--------------- ---------------
TOTAL ASSETS $3,865,576 $2,941,691
=============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accrued interest $ 26,755 $ 17,366
Accounts payable and other liabilities 322,588 147,797
Debt financing:
Commercial paper and bankers' acceptances 173,625 128,927
Notes payable 234,943 5,454
Obligations under capital leases 7,117 7,253
Senior term notes 1,998,600 1,625,000
--------------- ---------------
Total debt financing 2,414,285 1,766,634
--------------- ---------------
Nonrecourse obligations 474,154 397,849
Deferred income 21,144 10,714
Deferred income taxes 142,161 143,560
Stockholder's equity:
Convertible preferred stock, par value $1,
and additional paid-in capital 125,000 125,000
Authorized - 2,000,000 shares
issued and outstanding - 1,027,050 shares
in both years
Common stock, par value $1, and
additional paid-in capital 63,960 28,960
Authorized - 4,000,000 shares
Issued and outstanding - 1,031,250 shares
in both years
Accumulated other comprehensive income, net of tax 18,294 27,661
Retained earnings 257,235 276,150
--------------- ---------------
Total stockholder's equity 464,489 457,771
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $3,865,576 $2,941,691
=============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
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GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, (in thousands) 2000 1999 1998
------------ ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (18,915) $ 67,591 $ 59,317
Reconciliation to net cash provided by
operating activities:
Provision for losses on investments 21,140 11,001 11,029
Depreciation and amortization expense 224,162 145,344 110,825
Provision for deferred income taxes 5,615 45,227 19,339
Gain on sale of assets (53,431) (60,062) (69,423)
Gain on sale of securities (52,307) (14,703) (2,356)
Loss on sale of discontinued operations - (1,094) -
Joint venture income, net of cash dividends (40,994) (38,962) (21,778)
Impairment loss - - 6,000
Provision for litigation 160,500 - -
Changes in assets and liabilities:
Other assets (32,041) (87) 19,499
Due from GATX Corporation (26,972) (8,889) (1,912)
Accrued interest, accounts payable and
other liabilities 10,773 (1,034) (19,757)
Deferred income 10,430 1,012 (3,854)
Other - net (21,157) (992) (8,782)
------------ ------------ ----------
Net cash flows provided by operating activities 186,803 144,352 98,147
------------ ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in leased equipment, net of
nonrecourse borrowings for leveraged leases (700,850) (696,978) (507,996)
Loans extended to borrowers (436,120) (268,762) (161,633)
Other investments (395,377) (245,311) (181,482)
------------ ----------- ----------
Total investments (1,532,347) (1,211,051) (851,111)
------------ ------------ ----------
Lease rents received, net of earned income and
leveraged lease nonrecourse debt service 150,970 145,940 148,842
Loan principal received 160,556 88,688 326,193
Proceeds from sale of assets 178,371 220,427 248,425
Proceeds from sale of securities 52,307 14,703 2,356
Joint venture investment recovery, net of earned income 84,779 46,599 139,011
------------ ------------ ----------
Recovery of investments 626,983 516,357 864,827
------------ ------------ ----------
Net cash flows (used in) provided by investing
activities (905,364) (694,694) 13,716
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings 274,187 (1,297) (47,817)
Proceeds from nonrecourse obligations 734,752 189,467 204,098
Proceeds from issuance of long-term debt 692,600 647,000 20,000
Proceeds from additional paid-in capital 35,000 - -
Proceeds from capital lease obligation 1,910 - -
Repayment of nonrecourse obligations (629,223) (173,008) (152,528)
Repayment of long-term debt (319,000) (98,600) (99,000)
Dividends paid to stockholder - (33,850) (29,658)
Repayment of capital lease obligations (2,046) (1,528) (973)
------------ ----------- ----------
Net cash flows provided by (used in) financing
activities 788,180 528,184 (105,878)
------------ ----------- ----------
Net increase (decrease) in cash and cash equivalents 69,619 (22,158) 5,985
Cash and cash equivalents at beginning of year 45,817 67,975 61,990
------------ ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 115,436 $ 45,817 $ 67,975
============ =========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Income taxes (received from) paid to parent $ (22,682) $ 8,103 $ 23,800
============ =========== ==========
Interest paid $ 177,745 $ 115,395 $ 119,075
Interest capitalized (10,501) (4,096) (2,064)
------------ ----------- ----------
Net interest paid $ 167,244 $ 111,299 $ 117,011
============ =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
9
13
GATX CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(in thousands)
Accumulated
Other
Preferred Common Additional Comprehensive Retained
Stock Stock Capital Income(A) Earnings Total
---------- --------- ----------- ------------- ----------- ----------
Balance, January 1, 1998 1,027 1,031 151,902 215 212,750 366,925
Comprehensive income:
Net income 59,317 59,317
Other comprehensive income:
Foreign currency translation (1,447) (1,447)
Unrealized gain/loss on securities:
Unrealized holding gains 2,818
Less: reclassification adjustment
for gains realized in net income (814)
------------- ----------
Net unrealized gains 2,004 2,004
----------
Comprehensive income 59,874
Dividends paid on common stock (29,658) (29,658)
---------- --------- ----------- ------------- ----------- ----------
Balance, December 31, 1998 1,027 1,031 151,902 772 242,409 397,141
Comprehensive income:
Net income 67,591 67,591
Other comprehensive income:
Foreign currency translation (1,454) (1,454)
Unrealized gain/loss on securities:
Unrealized holding gains 37,279
Less: reclassification adjustment
for gains realized in net income (8,936)
------------- ----------
Net unrealized gains 28,343 28,343
----------
Comprehensive income 94,480
Dividends paid on common stock (33,850) (33,850)
---------- --------- ----------- ------------- ----------- ----------
Balance, December 31, 1999 1,027 1,031 151,902 27,661 276,150 457,771
Comprehensive loss:
Net loss (18,915) (18,915)
Other comprehensive loss:
Foreign currency translation (2,413) (2,413)
Unrealized gain/loss on securities:
Unrealized holding gains 24,836
Less: reclassification adjustment
for gains realized in net income (31,790)
------------- ----------
Net unrealized losses (6,954) (6,954)
----------
Comprehensive loss (28,282)
Additional paid-in-capital
on common stock 35,000 35,000
---------- --------- ----------- ------------- ----------- ----------
Balance, December 31, 2000 $1,027 $1,031 $186,902 $18,294 $257,235 $464,489
========== ========= =========== ============= =========== ==========
(A) The accumulated other comprehensive income balance is comprised of foreign
currency translation losses and net unrealized gains of ($9,718) and $28,012,
($7,305) and $34,966, and ($5,851) and $6,623 at December 31, 2000, 1999 and
1998, respectively. Amounts are presented net of an effective tax rate of
39.225%.
The accompanying notes are an integral part of these consolidated financial
statements.
10
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting and reporting policies used
in preparing the consolidated financial statements.
CONSOLIDATION
The consolidated financial statements of GATX Capital Corporation and its
subsidiaries (the "Company") are prepared in accordance with accounting
principles generally accepted in the United States. The consolidated financial
statements reflect the elimination of all material intercompany accounts and
transactions. Investments in joint ventures and other entities in which the
Company has significant influence over operating and financial policies are
accounted for by the equity method.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased within three
months of their maturity date to be cash equivalents.
LEASE AND LOAN ORIGINATION COSTS
Initial direct costs of leases are deferred and amortized over the lease term,
either as an adjustment to the yield for direct finance and leveraged leases
(collectively, "financing leases"), or on a straight-line basis for operating
leases. Loan origination fees and related direct loan origination costs for a
given loan are offset, and the net amount is deferred and amortized over the
term of the loan as an adjustment to interest income.
RESIDUAL VALUES
For financing leases, the Company reviews the estimated residual values of
leased equipment at least annually, and any other-than-temporary declines in
value are immediately charged to income. For operating leases, the Company
reviews the estimated salvage values of leased equipment at least annually, and
changes in value are recorded as adjustments to depreciation expense over the
remaining useful life of the asset. In addition to a periodic review, if events
or changes in circumstances trigger a review of operating lease assets for
impairment, any such impairment is immediately charged to income as impairment
loss.
GOODWILL
Goodwill, which represents the excess of the purchase price of a business over
the fair value of net assets acquired, is included in other assets on the
balance sheet. The Company amortizes goodwill on a straight-line basis over
periods ranging from 10 to 20 years, and regularly reviews the remaining balance
for possible impairment.
AVAILABLE-FOR-SALE SECURITIES
The available-for-sale portfolio consists of stock warrants received from
investee companies and common stock resulting from exercising the warrants.
These securities are carried at fair value. Upon receipt, fair value is
generally not ascertainable due to the early-stage nature of the investee
companies; accordingly, assigned values are nominal. For subsequent reporting,
cost is generally assumed to be the best estimate of fair value until the
investee's common stock becomes marketable. Unrealized gains and losses arising
from marking the portfolio to fair value are included on a net-of-tax basis as a
separate component of other comprehensive income in stockholder's equity.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate and currency swap agreements, and forward sale
agreements, as hedges to manage the exposure to interest rate, currency exchange
rate, and market risk on existing and anticipated transactions.
Under existing accounting guidance, the derivative instrument must be identified
with and reduce the risk arising from a specific transaction to qualify for
hedge accounting. Interest income or expense on interest rate swaps is accrued
and recorded as an adjustment to the interest income or expense related to the
hedged item. Realized and unrealized gains on currency swaps are deferred and
included in the measurement of the hedged investment over the term of the
contract. Fair value changes arising from forward sale agreements are deferred
as a component of the hedged investment and recognized in other comprehensive
income in stockholder's equity in conjunction with unrealized gains and losses
on the designated hedged item.
11
15
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an amendment of FASB Statement No. 133." SFAS No.
133, as amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging instruments. The statement requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in fair value of the
derivative will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through current earnings, or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.
In connection with its financing activities, the Company frequently obtains
warrants from non-public, venture capital-backed companies. Through December 31,
2000, these items were accounted for as available-for-sale securities in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," with changes in fair value recorded as unrealized gain or
loss in other comprehensive income in the equity section of the balance sheet.
Upon adoption of SFAS No. 133, as amended, on January 1, 2001, the Company's
warrants will be accounted for as derivatives, with prospective changes in fair
value recorded in current earnings.
As of December 31, 2000, a total of $28.0 million of unrealized gains, net of
tax, were recorded in other comprehensive income, consisting of $25.5 million,
net of tax, from stock held in the available-for-sale securities portfolio and
$2.5 million, net of tax, from warrants.
Based on the level of activity through the end of year 2000, the Company expects
the accounting for stock warrants under SFAS No. 133, as amended, to have a
material impact on earnings in future periods, but the accounting for other
derivative instruments to be immaterial to the Company's financial statements.
The SEC issued Staff Accounting Bulletin No. 101, effective beginning in the
fourth quarter of 2000, to provide their views in applying generally accepted
accounting principles to selected revenue recognition issues. The majority of
the Company's gross income is derived from the rentals of railcars, commercial
aircraft, technology equipment and marine vessels, as well as income from
finance leases, asset remarketing, stock sales, secured loans and providing
various services. Inasmuch as the Company's transactions are generally within
the scope of specific authoritative accounting literature that provides revenue
recognition guidance, such as SFAS No. 13, "Accounting for Leases," the Company
does not believe SAB No. 101 will have a material impact on the consolidated
financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. NATURE OF OPERATIONS
The Company, a wholly-owned subsidiary of GATX Corporation (the "Parent"),
engages in various asset-based financings using financial instruments, primarily
leases and loans, both for its own account and as a participant in various
partnerships and joint ventures. The Company actively manages its own investment
portfolio, the portfolios of several joint ventures and partnerships in which it
participates, and portfolios owned by others. The Company also arranges secured
financing for others.
3. ACQUISITIONS AND DISPOSITIONS
On June 30, 1999, the Company sold its technology equipment sales and service
business segment to a third party (the "Buyer") for $23.4 million. The
consideration received included stock of the Buyer valued at $18.4 million and
an interest bearing note receivable from the Buyer for the remaining balance
due. The Company recognized an after-tax gain of $1.1 million from the sale.
Results from the technology sales and service business segment are shown as
12
16
discontinued operations with prior year activity reclassified into one line on
the consolidated statements of income. All assets and liabilities relating to
the technology equipment segment were removed from the balance sheet at the time
of the sale.
In February 1999, the Company purchased 100% of Meier Mitchell & Company, a
venture finance firm, for $7.9 million, which included $4.1 million of goodwill.
In addition to the original purchase price, the Company agreed to make
contingency payments to the seller over the next five years based on certain
performance criteria. During 2000, the Company paid an additional $12.0 million
of goodwill. Goodwill is being amortized over 15 years. Further payments cannot
be reasonably estimated currently.
In December 1998, the Company paid approximately $61.0 million for a 50%
interest in Rolls-Royce & Partners Finance Ltd. (RRPF), which owns and leases a
portfolio of spare aircraft engines. The Company recorded $17.0 million of
goodwill, which is being amortized on a straight-line basis over 20 years.
4. INVESTMENTS
DIRECT FINANCING LEASES
The Company's investment in direct financing leases consists of lease contracts
receivable, plus the estimated residual value of the equipment at the lease
termination date, less unearned income. Lease contracts receivable represents
the total rent to be received over the term of the lease reduced by rent already
collected. Initial unearned income is the amount by which the original sum of
the lease contract receivable and the estimated residual value exceeds the
original cost of the leased equipment. Unearned income is amortized to lease
income over the lease term in a manner that produces a constant rate of return
on the net investment in the lease.
The following summarizes the Company's investment in direct financing leases:
AT DECEMBER 31,
---------------------------
2000 1999
---------- ---------
Lease contracts receivable $ 625,274 $ 504,865
Estimated residual value 200,684 127,767
Unearned income (162,377) (154,893)
---------- ---------
Net investment $ 663,581 $ 477,739
========== =========
LEVERAGED LEASES
Financing leases that are primarily funded with nonrecourse borrowings at lease
inception and that satisfy certain additional criteria are accounted for as
leveraged leases. Leveraged lease contracts receivable are reported net of
related nonrecourse debt service. Initial unearned income represents the excess
of anticipated cash flows (including estimated residual values, and net of the
related debt service) over the Company's original investment in the lease. The
Company recognized net leveraged lease income of $28.6 million, $23.8 million,
and $17.7 million in 2000, 1999, and 1998, respectively.
The following summarizes the Company's net investment in leveraged leases:
AT DECEMBER 31,
-----------------------------
2000 1999
----------- -----------
Lease contracts receivable $ 1,220,791 $ 1,277,789
Nonrecourse debt service (1,005,043) (1,074,741)
----------- -----------
Net receivable 215,748 203,048
Estimated residual value 158,439 116,406
Unearned income (150,671) (149,388)
----------- -----------
Investment in leveraged
leases 223,516 170,066
Deferred taxes arising from
leveraged leases (73,216) (49,754)
----------- -----------
Net investment $ 150,300 $ 120,312
=========== ===========
OPERATING LEASES
Leases that do not qualify as direct financing or leveraged leases are accounted
for as operating leases. Rental income from operating leases is usually reported
on a straight-line basis over the term of the lease, although it may be
recognized based on equipment usage. Usage rents totaled $2.6 million, $2.4
million, and $1.5 million in 2000, 1999, and 1998, respectively. Equipment
subject to operating leases are recorded at cost, plus accrued rent, less
accumulated depreciation and are generally depreciated using the straight-line
method to an estimated residual value.
13
17
Aircraft and rail equipment are depreciated over their useful lives, while other
equipment is generally depreciated over the term of the lease. Estimated useful
lives are up to 25 years for aircraft, 37.5 years for rail cars, and 27.5 years
for locomotives, and technology equipment is leased for 2 to 5 years. Operating
lease expense included depreciation expense of $213.2 million, $137.3 million,
and $94.1 million for 2000, 1999, and 1998, respectively.
Major classes of equipment on operating leases are as follows:
AT DECEMBER 31,
--------------------------------
2000 1999
---------------- --------------
Commercial aircraft $ 532,961 $ 321,411
Rail 208,142 180,785
Technology 608,554 588,876
Other 62,456 87,893
---------- ----------
Total cost 1,412,113 1,178,965
Accumulated depreciation (325,242) (241,791)
---------- ----------
Net book value 1,086,871 937,174
Accrued rent and other 46,190 22,949
---------- ----------
Net investment $1,133,061 $ 960,123
========== ==========
SECURED LOANS
Secured loans are recorded at the principal amount outstanding plus accrued
interest. The loan portfolio is reviewed regularly, and a loan is classified as
impaired when it is probable that the Company will be unable to collect all
amounts due under the loan agreement. Since most loans are collateral dependent,
impairment is generally measured as the amount the recorded investment in the
loan exceeds the fair value of the collateral, and any adjustment is considered
in determining the provision for losses on investments. Interest income is not
recognized on impaired loans until the outstanding principal is recovered.
The average balance of impaired loans was $42.6 million, $14.7 million, and $8.1
million in 2000, 1999, and 1998, respectively.
The types of loans in the Company's portfolio are as follows:
AT DECEMBER 31,
---------------------------------
2000 1999
--------------- ---------------
Equipment $368,484 $245,684
Venture 254,413 102,686
Golf courses 11,178 9,631
--------- ---------
Total investment $634,075 $358,001
--------- ---------
Impaired loans (included in total) $ 62,890 $ 22,250
========= =========
FUTURE LEASE AND LOAN RECEIVABLES
The following summarizes maturities by year for financing lease receivables (net
of nonrecourse debt service in the case of leveraged leases), minimum future
rentals under operating leases, and secured loans, as of December 31, 2000:
FINANCING OPERATING
LEASE LEASE LOAN
YEAR ENDED DECEMBER 31, RECEIVABLES RECEIVABLES RECEIVABLES
-------------- -------------- ------------
2001 $252,839 $ 329,261 $171,086
2002 149,059 209,278 109,807
2003 93,461 115,755 98,941
2004 56,242 82,221 51,086
2005 43,992 67,736 19,103
After 2005 245,429 222,719 184,052
-------- ---------- --------
Total $841,022 $1,026,970 $634,075
======== ========== ========
INVESTMENTS IN JOINT VENTURES
The Company invests in joint ventures in commercial aircraft leasing, rail
equipment leasing, technology equipment leasing, and other business activities,
including ventures that provide asset residual value guarantees in both domestic
and foreign markets. The Company uses the equity method to account for these
investments, based on the effective ownership interest and/or level of control
over the venture. Accordingly, the investments are initially recorded at cost,
subsequently adjusted for the Company's share of undistributed earnings or
losses, and reduced by cash distributions.
14
18
The following table provides unaudited combined and condensed financial
information for the Company's joint ventures. Pre-tax income is presented
because the majority of the joint ventures are partnerships that do not provide
for income taxes in their separate financial statements.
For purposes of preparing the following information, the Company makes certain
adjustments to the information provided by the joint ventures. First, the
Company makes adjustments to ensure that the joint venture's financial
statements are consistent with the Company's accounting policies and
presentation. For example, the balance sheets for all ventures are unclassified,
consistent with the Company's balance sheet. Secondly, pre-tax income has been
increased by $57.3 million, $49.0 million, and $46.8 million in 2000, 1999, and
1998, respectively, to reverse interest expense recognized by joint ventures on
loans from the Company. Finally, since the Company records its loans to the
joint ventures as equity contributions, loan balances of $873.3 million, $773.2
million, $703.2 million at December 31, 2000, 1999, and 1998, respectively, have
been reclassified from liabilities to equity. This results in a difference
between the carrying value of the Company's investment in the joint venture and
the Company's equity in the underlying net assets as reported by the joint
venture.
The following table provides the unaudited combined and condensed financial
information for the Company's joint ventures:
YEAR ENDED DECEMBER 31,
------------------------------------------------
2000 1999 1998
-------------- -------------- -------------
Revenues $ 682,857 $ 561,565 $ 415,265
Pre-tax income 195,005 137,191 113,151
Total assets 5,093,339 4,208,898 3,586,607
Indebtedness 2,104,486 1,646,623 1,844,339
Total liabilities 2,720,106 2,174,921 2,024,536
Equity $2,373,233 $2,033,977 $1,562,071
The following selected data (unaudited) reflects the Company's proportional
share of joint ventures and other equity method affiliates owned by the Company
as of December 31, 2000:
DECEMBER 31, 2000 AIRCRAFT RAIL TECHNOLOGY OTHER TOTAL
--------------------- ----------- ------------ ----------- ------------ ------------
Total Assets $1,059,923 $322,254 $103,623 $439,239 $1,925,039
Indebtedness 505,492 208,924 78,081 188,681 981,178
Total Liabilities 564,261 200,257 90,591 203,100 1,058,207
Equity 495,662 121,997 13,032 236,139 866,832
ASSETS HELD FOR SALE OR LEASE
Assets held for sale or lease consist of equipment, repossessed or returned by
the lessee upon lease termination, and real estate (including golf courses) on
which the Company foreclosed, which the Company intends to release or sell in
the normal course of business. These assets are recorded at the lower of their
carrying amount or fair value.
The major classes of assets held for sale or lease are as follows:
AT DECEMBER 31,
------------------------------
2000 1999
------------- -------------
Rail $19,835 $20,227
Aircraft 14,095 3,230
Technology 2,434 786
Real estate and golf 2,119 12,750
courses
------- -------
Net investment $38,483 $36,993
======= =======
OTHER INVESTMENTS
The following summarizes other investments:
AT DECEMBER 31,
------------------------------
2000 1999
-------------- -------------
Progress payments $11,506 $ 85,786
Available-for-sale securities 46,092 57,533
Investments carried at cost 24,832 18,374
Real estate development 5,188 7,689
Cogeneration facility - 23,446
Other 1,320 4,268
------- --------
Total other investments $88,938 $197,096
======= ========
Progress payments represent amounts paid, including capitalized interest, toward
the construction of aircraft as of December 31, 2000 and 1999.
Available-for-sale securities consist only of gross unrealized holding gains.
15
19
INVESTMENT IN FUTURE RESIDUALS
Investments in future residuals primarily represent the Company's purchased
interest in the residual values of equipment leased by others. Such purchased
residual interests are generally recorded at cost, with differences between
initial cost and realized value recognized upon disposition.
ALLOWANCE FOR LOSSES ON INVESTMENTS
The purpose of the allowance is to provide for credit and collateral losses
inherent in the investment portfolio. Management sets the allowance by assessing
overall risks and total probable losses in the portfolio, and by reviewing the
Company's historical loss experience. The Company charges off amounts that
management considers unrecoverable from obligors or the disposition of
collateral. The Company assesses the recoverability of investments by
considering factors such as a customer's payment history and financial position,
and the value of collateral based on internal and external appraisal sources.
The following summarizes changes in the allowance for losses on investments:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2000 1999 1998
-------------- ------------- -------------
Beginning balance $109,771 $129,278 $121,576
Provision* 16,168 11,001 11,029
Charges to allowance (36,837) (34,249) (8,305)
Recoveries and other 299 3,741 4,978
-------- -------- --------
Balance at end of year $ 89,401 $109,771 $129,278
======== ======== ========
* The total reported provision for losses on investments in 2000 was
$21,140, which consists of the $16,168 provision to the allowance for
loan loss and $4,972 of asset impairment losses.
The charges to allowance in 2000 were primarily due to write-offs related to
leases in the technology sector, commercial aircraft and a steel production
facility.
5. OTHER ASSETS
Other assets consist of the following:
AT DECEMBER 31,
-------------------------------
2000 1999
-------------- --------------
Intangibles, net of accumulated
amortization of $15,906 and $14,619 at
December 31, 2000 and 1999 $ 41,855 $31,687
Trade and other receivables 32,888 30,846
Prepaid expenses 18,512 3,219
Other 18,898 10,984
-------- -------
Total other assets $112,153 $76,736
======== =======
6. DEBT AND CAPITAL LEASE FINANCING
SHORT-TERM BORROWING
The Company has revolving credit agreements with a syndicate of domestic and
international commercial banks totaling $300.0 million at December 31, 2000. The
Company uses these credit agreements as undrawn facilities that support the
issuance of commercial paper in the U.S. and bankers' acceptances in Canada.
These credit agreements contain various covenants requiring minimum net worth,
restricting dividends and mandating certain financial ratios that collectively
restrict the Company from transferring more than $371.3 million of net assets to
the Parent at December 31, 2000. In addition to the above credit agreements, one
consolidated subsidiary has bank commitments totaling $35.0 million to fund
their operations, all of which was available at December 31, 2000.
At December 31, 2000, the Company had $173.6 million of commercial paper and
bankers' acceptances outstanding, leaving $126.4 million of unused revolving
credit agreements available for other purposes. Also, the Company has $234.9
million of short-term notes payable outstanding at December 31, 2000, $88.1
million of which was borrowed from a subsidiary of the Parent. The
weighted-average interest rate on all short-term borrowings was 7.6% and 6.6% as
of December 31, 2000 and 1999, respectively.
16
20
SENIOR TERM NOTES
The following summarizes the Company's senior term notes:
AT DECEMBER 31,
-----------------------------
2000 1999
------------ ------------
Variable Rate Notes, due 2001-2004 $ 552,600 $ 210,000
Fixed Rate Notes, 5.88% - 10.0% due 2001-2007 1,446,000 1,415,000
---------- ----------
Total senior term notes $1,998,600 $1,625,000
========== ==========
Interest on variable-rate senior term notes is calculated based on LIBOR. The
weighted average interest rate on senior term notes was 7.2% and 7.1% at
December 31, 2000 and 1999, respectively.
The Company has significant amounts of floating-rate lease and loan investments
that expose the Company to interest rate risk. The Company mitigates this risk
by trying to match its floating-rate assets with its floating-rate liabilities,
often using derivative financial instruments. Interest rate swap agreements are
used to modify the interest characteristic of outstanding liabilities, either by
changing the interest on debt from a fixed to a floating rate, or vice versa.
Under interest rate swap terms, the Company periodically receives or pays a
differential determined by calculating the difference between paying (receiving)
interest at a fixed rate and receiving (paying) interest at a LIBOR-indexed
floating rate, based on a notional principal amount. The differential is accrued
as interest on the debt and recognized as an adjustment to interest expense over
the life of the swap contract. As a result of using interest rate swaps,
interest expense was higher by $2.4 million in 2000, reduced by $1.4 million in
1999, and reduced by $0.7 million in 1998. The fair values of the interest rate
swap agreements are not recognized in the financial statements. The total
notional principal of all interest rate swaps as of December 31, 2000 was $144.5
million, with termination dates ranging from 2001 to 2006.
NONRECOURSE OBLIGATIONS
In the event of default, the lender of nonrecourse debt may only look to the
collateral for repayment. The Company's nonrecourse debt is primarily
collateralized by assigned leases and a security interest in the underlying
leased assets. The carrying amount of this collateral at December 31, 2000 is
$509.9 million.
The following summarizes the Company's nonrecourse obligations:
AT DECEMBER 31,
------------------------------
2000 1999
------------- -------------
Variable Rate, due 2002 - 2015 $ 91,238 $ 28,675
Fixed Rate, 6.28% - 10.7%, due 2001 - 2005 382,916 369,174
-------- ------------
Total nonrecourse obligations $474,154 $397,849
======== ============
Interest on variable rate nonrecourse obligations is calculated based on LIBOR.
The weighted average interest rate on variable nonrecourse obligations was 7.8%
and 6.8% at December 31, 2000 and 1999, respectively.
OBLIGATIONS UNDER CAPITAL LEASE
Obligations under capital leases arise from acquiring equipment to be subleased
under direct financing leases. Such subleases had carrying values of $19.4
million and $6.9 million at December 31, 2000 and 1999, respectively. Minimum
future lease payments receivable under these subleases aggregate to $8.5 million
through the period ending in 2014. The terms of the obligations under capital
leases generally match the terms of the related subleases, both having fixed
rental payments, and similar purchase or renewal options if available.
17
21
MATURITIES
The following table summarizes the maturity dates for senior term notes,
nonrecourse obligations, and obligations under capital leases. The table also
includes maturity dates for unused revolving commitments based on the assumption
that the commitment will be used to retire commercial paper, notes payable and
bankers' acceptances.
CONVERTED
REVOLVING
CREDIT LOANS OBLIGATIONS TOTAL
AND OTHER SENIOR TERM UNDER CAPITAL TOTAL DEBT NONRECOURSE
YEAR DUE SHORT-TERM NOTES NOTES LEASES FINANCING OBLIGATIONS
----------------- -------------- --------------- -------------- --------------
2001 $408,568 $ 238,520 $1,591 $ 648,679 $206,669
2002 -- 397,520 1,934 399,454 148,151
2003 -- 451,020 1,754 452,774 63,499
2004 -- 194,520 (25) 194,495 19,138
2005 -- 142,520 (10) 142,510 6,259
After 2005 -- 574,500 1,873 576,373 30,438
-------- ---------- ------ ------------- --------
Total $408,568 $1,998,600 $7,117 $2,414,285 $474,154
======== ========== ====== ============= ========
Imputed interest on capital leases totaled $1.4 million at December 31, 2000.
7. OPERATING LEASE OBLIGATIONS
The Company incurs rental expense as a lessee under certain equipment and
facility operating leases, and earns rental income as a lessor under related
operating subleases. Total rental expense was $43.6 million, $42.3 million, and
$42.9 million, and corresponding sublease operating income was $42.4 million,
$42.4 million, and $43.5 million, in 2000, 1999, and 1998 respectively.
The following summarizes future rents payable through 2022 and sublease rents
receivable under noncancelable operating leases through 2015:
OPERATING
LEASE LEASE
YEAR DUE OBLIGATIONS RECEIVABLES
-------------- ------------- -------------
2001 $ 34,820 $ 39,013
2002 34,516 31,323
2003 31,206 28,335
2004 26,502 23,444
2005 24,255 21,755
After 2005 247,451 90,403
-------- --------
Total $398,750 $234,273
======== ========
8. STOCKHOLDER'S EQUITY
As of December 31, 2000 and 1999, all issued common and preferred stock of the
Company was held by the Parent. The preferred stock is convertible to common
stock on a one-for-one basis at the option of the holder. Dividends on preferred
stock are payable at the same rate per share as common stock when and as
declared by the board of directors.
9. INCOME TAXES
The Parent files a consolidated federal income tax return that includes the
taxable income of the Company. Under an intercompany tax agreement, the Company
reimburses the Parent for any additional federal tax liabilities that it
generates, and receives reimbursement from the Parent for any of the Company's
operating losses or tax credits utilized in the consolidated federal return.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has recorded
these differences in its deferred tax accounts, intercompany accounts
receivable, and equity accounts. During the period from 1975 to 1985, the
Company sold a portion of its deferred tax liability to the Parent, and the
Parent reinvested the proceeds in the Company by purchasing convertible
preferred stock that is currently outstanding. The Company also purchased
deferred tax liabilities from the Parent through December 31, 1994 for which the
Company recorded an account receivable of $46.1 million.
18
22
In connection with the Company's 1998 acquisition of a 50% interest in RRPF, a
net deferred income tax liability of $8.8 million was recorded in accordance
with SFAS No. 109, "Accounting for Income Taxes." In 2000 and 1999, $1.7 million
and $0.9 million, respectively, of this liability turned around.
The Company's deferred tax liabilities and assets consist of the following:
AT DECEMBER 31,
------------------------------
2000 1999
------------- -------------
DEFERRED TAX LIABILITIES
Leveraged Leases $ 73,216 $ 49,754
Other Leases 154,299 125,668
Investment in joint ventures 116,133 101,064
Alternative minimum tax adjustment (15,507) 5,889
Other 49,361 40,089
-------- --------
Total deferred tax liabilities 377,502 322,464
======== ========
DEFERRED TAX ASSETS
Allowance for losses on investments 35,067 43,058
Loans 23,584 31,416
Allowance for litigation 62,956 -
Other 34,793 25,489
-------- --------
Total deferred tax assets 156,400 99,963
-------- --------
Net deferred tax liabilities $221,102 $222,501
======== ========
TAX ACCOUNT BALANCES
Deferred income tax liabilities $142,161 $143,560
Preferred stock and related additional paid-in capital 125,000 125,000
Due from GATX Corporation (46,059) (46,059)
-------- --------
Net deferred tax liabilities $221,102 $222,501
======== ========
The provision for income taxes from continuing operations consists of the
following:
YEAR ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
--------- ---------- ----------
CURRENT
Federal $(18,798) $(2,984) $29,074
State and local (514) 1,643 2,239
Foreign 1,400 4,598 615
-------- ------- ------
Total current (17,912) 3,257 31,928
======== ======= ======
DEFERRED
Federal 3,724 40,023 10,999
State and local (2,482) 5,347 5,553
Foreign 4,372 512 2,787
-------- ------- ------
Total deferred 5,614 45,882 19,339
-------- ------- ------
Total (benefit) provision for income taxes
from continuing operations (12,298) $49,139 $51,267
======== ======= =======
A reconciliation between the federal statutory tax rate and the Company's
effective tax rate is shown below:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2000 1999 1998
------------- ------------- -------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State tax provision, net of federal tax benefit 4.1% 4.1% 4.1%
Other 0.3% 1.6% 2.5%
---- ---- ----
Effective tax rate 39.4% 40.7% 41.6%
The tax expense related to leveraged lease income was $11.8 million, $17.8
million, and $5.2 million in 2000, 1999, and 1998, respectively.
Income before income taxes from foreign operations was $16.8 million, $8.0
million, and $0.8 million in 2000, 1999, and 1998, respectively.
The Company does not provide federal income taxes on the undistributed earnings
of foreign subsidiaries and affiliates where it intends to permanently reinvest
the earnings in the foreign operations. The cumulative amount of such earnings
was $48.4 million at December 31, 2000. It is not practicable to estimate the
tax liability, if any, related to these earnings.
19
23
10. FOREIGN OPERATIONS
The Company provides or arranges equipment financing for non-affiliated entities
both inside and outside the United States. In the following table, "export"
revenue arises from transactions, some denominated in foreign currencies,
between the Company's domestic operations and customers in foreign countries.
"Foreign" refers to the Company's operations located outside of the United
States.
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2000 1999 1998
-------------- ------------- -------------
REVENUES
Domestic $ 618,713 $ 466,097 $ 398,638
Export 91,699 61,252 43,864
Foreign 17,929 20,184 25,553
Eliminations (3,617) (2,671) (1,603)
---------- ---------- ----------
TOTAL REVENUES $ 724,724 $ 544,862 $ 466,452
========== ========== ==========
NET INCOME (LOSS)
United States $ (50,040) $ 49,327 $ 49,948
Foreign 31,125 18,264 9,369
---------- ---------- ----------
TOTAL NET INCOME $ (18,915) $ 67,591 $ 59,317
========== ========== ==========
TOTAL ASSETS
United States $3,208,141 $2,480,442 $1,939,246
Foreign 732,857 478,372 412,145
Eliminations (75,422) (17,123) (75,709)
---------- ---------- ----------
TOTAL ASSETS $3,865,576 $2,941,691 $2,275,682
========== ========== ==========
The Company has entered into currency swap and forward rate agreements to
protect the dollar-value of expected foreign-denominated cash flows from adverse
changes in foreign exchange rates. As of December 31, 2000, total currency swap
agreements convert $22.8 million of dollar-denominated liabilities to 32.8
million of Canadian dollar-denominated liabilities, with swap termination dates
between 2001 and 2013. The forward rate agreements convert 24.5 million euros to
$28.7 million between 2001 and 2011.
11. BUSINESS SEGMENTS
For the first six months of 1999, the Company operated in two business segments:
Investment and Asset Management, comprised of lease, loan and joint venture
investments and fee generation and asset management businesses; and Technology
Equipment Sales and Service, comprised of sales and servicing of computer
network technology equipment. The Company sold the technology equipment segment
on June 30, 1999.
Notwithstanding the above, senior management periodically reviews categories
within its investment portfolio for selected purposes. One such categorization
divides the Company's investments into air, rail, venture, technology and other,
in accordance with the type of asset underlying the investment. The following
table summarizes the data reviewed by senior management for these categories:
(IN MILLIONS) AIR RAIL VENTURE TECH OTHER TOTAL
------------------------- ------- ------- ------- ------- -------- --------
Total Revenue $ 129.9 $103.6 $ 99.7 $253.5 $138.0 $ 724.7
Investments Before Allowance 1,004.2 433.3 478.0 753.4 984.8 3,653.7
Funded Investments in 2000 288.3 107.9 339.9 397.7 398.6 1,532.4
12. RETIREMENT BENEFITS
The Company participates in the Parent's Non-Contributory Pension Plan for
Salaried Employees (the "Plan"), a defined benefit pension plan covering
substantially all employees. Independent actuaries determine pension cost for
each subsidiary of the Parent included in the Plan; however, accumulated Plan
obligation information, Plan assets and the components of net periodic pension
costs pertaining to each subsidiary have not been separately determined.
Contributions to the Plan made by the Company through the Parent were zero,
zero, and $0.5 million in 2000, 1999 and 1998, respectively. Pension expense
allocated to the Company was $1.6 million, $1.3 million, and $1.0 million in
2000, 1999 and 1998, respectively.
For certain retired employees who meet established criteria, the Company
provides other postretirement benefits in addition to pension benefits, such as
limited health care and life insurance benefits. Most domestic employees are
eligible for other postretirement benefits if they retire from the Company with
immediate pension benefits under the Plan. The net periodic cost and accrued
liability associated with these benefits are not material to these financial
statements.
20
24
13. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
At December 31, 2000, the Company's investment portfolio, including off-balance
sheet assets, consists of 33% air equipment, 13% rail equipment, 21% technology
equipment, 13% venture-related investments, 6% oil, steel and other production
equipment, 6% marine equipment, and 8% other equipment.
The Company's backlog, which represents planned equipment purchases, some
subject to firm purchase commitments, was $2.1 billion (unaudited) and $1.8
billion (unaudited), at December 31, 2000 and 1999, respectively.
The Company provides financial guarantees to its customers and affiliates in the
normal course of business. Guarantees are commitments having off-balance sheet
risk issued to (1) guarantee performance of an affiliate to a third party,
generally in the form of a lease or loan payment guarantee, or (2) guarantee the
value of an asset at the end of a lease. Similar to the Company's on-balance
sheet investments, these guarantees expose the Company to credit and market
risk; accordingly, the Company evaluates commitments (and other contingency
obligations) using the same techniques used to evaluate funded transactions.
Commitments are reviewed at least annually for potential exposure using the same
criteria as discussed in the Allowance for Losses on Investments footnote, and
the provision for losses on investments is adjusted as appropriate.
The Company generally issues loan and lease payment guarantees to support
affiliates' outside borrowings, which affiliates use to acquire assets that are
then leased to third parties. The Company is not aware of any event of default
which would require it to satisfy these guarantees, and expects the affiliates
to generate sufficient cash flow to satisfy their lease and loan obligations. At
December 31, 2000 the Company had guaranteed $109.1 million of such obligations,
having fixed expiration dates ranging from 2001 through 2016. The Company
receives fees for providing some of these guarantees, which it recognizes in
income as earned.
The Company issues asset value guarantees, which insure that an asset or group
of assets will have a specific worth at the end of a lease term, and minimum
lease receipt guarantees to third parties, both on its own and through joint
venture affiliates created solely to guarantee asset values. The Company has
evaluated these guarantees using the same techniques used to evaluate funded
transactions, and has concluded, based on known and expected market conditions,
that the guarantees will not result in any adverse financial impact to the
Company. At December 31, 2000 the Company had guaranteed $190.5 million of asset
value, under contracts expiring between 2001 and 2020. Revenue is earned for
providing these asset value guarantees in the form of an initial fee (which is
amortized into income over the guarantee period) and by sharing in any proceeds
received upon disposition of the asset in excess of the amount guaranteed (which
is recorded when realized).
The Company has various unresolved claims pending. The ultimate liability with
respect to such claims cannot be determined at this time, but management
believes that damages, if any, required to be paid by the Company in the
discharge of such liabilities are not likely to be material to the Company's
consolidated financial position or results of operations.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Generally accepted accounting principles require disclosure of the estimated
fair value of the Company's financial instruments, excluding lease transactions
accounted for under SFAS 13. Fair value is a subjective and imprecise
measurement that is based on assumptions and market data.
The use of different market assumptions and valuation methodologies may have a
material effect on the estimated fair value amounts. Accordingly, management
cannot provide assurance that the fair values presented are indicative of the
amounts that the Company could realize in a current market exchange.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
SHORT-TERM FINANCIAL INSTRUMENTS
The carrying amounts included on the balance sheet approximate fair value
because of the short maturity of these instruments. This approach applies to
cash and cash equivalents, accrued interest, accounts payable, commercial paper,
and bankers' acceptances.
21
25
SECURED LOANS
The fair values of the fixed-rate loans are estimated using discounted cash flow
analysis at interest rates currently offered for loans with similar terms to
borrowers of similar credit quality. The discount rate is only applied to the
unreserved portion of certain fixed-rate loans that have specific reserves in
the allowance for loan losses equal to or in excess of 25% of the recorded value
of the loan. The fair values of the variable-rate secured loans are assumed to
be equal to their carrying values.
SENIOR TERM NOTES AND NONRECOURSE OBLIGATIONS
The fair value of fixed rate senior term notes and nonrecourse obligations are
estimated by discounting future contractual cash flows using the market interest
rate for each note based on the Company's current incremental borrowing rates
for similar borrowing arrangements. The fair values of variable rate senior term
notes and nonrecourse obligations are assumed to be equal to their carrying
values.
INTEREST RATE AND CURRENCY SWAPS
The fair value of the interest rate and currency swaps are estimated by
discounting the fixed cash flows received under each swap using the rate at
which the Company could enter into new swaps of similar remaining maturities.
The carrying amount shown on the table below represents the amount of accrued
interest payable or receivable at the end of the period. The fair value
represents the accrued amount plus the amount that the Company would have to pay
or would receive in the current market to unwind the swaps.
OTHER OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
It is not practicable to estimate the fair value of the Company's other
off-balance sheet financial instruments. Since there are few active markets for
these instruments, and the Company holds an immaterial amount of such
instruments, the Company would be unable to estimate fair value without
incurring excessive costs.
SUMMARY OF FAIR VALUES
The following table presents the fair values of only those financial instruments
required to be presented by generally accepted accounting principles. Proceeds
from senior term notes are invested in a variety of activities, including both
financial instruments shown in this table, as well as leases and joint venture
investments, for which fair value disclosures are not required.
AT DECEMBER 31, 2000
------------------------------
CARRYING FAIR
AMOUNT VALUE
------------- -------------
ASSETS
Secured Loans $ 634,075 $ 616,816
LIABILITIES
Senior term notes 1,998,600 1,980,263
Nonrecourse obligations 474,154 442,608
Interest rate and currency swaps 34 5,391
AT DECEMBER 31, 1999
------------------------------
CARRYING FAIR
AMOUNT VALUE
------------- -------------
ASSETS
Secured Loans $ 358,001 $ 355,971
LIABILITIES
Senior term notes 1,625,000 1,592,234
Nonrecourse obligations 397,849 372,950
Interest rate and currency swaps 46 (1,109)
15. SUBSEQUENT EVENTS
The Company was party to litigation arising from the issuance by the 1996
Federal Aviation Administration of Airworthiness Directive 96-01-03, the effect
of which significantly reduced the amount of freight that ten 747 aircraft were
authorized to carry. GATX/Airlog, a California partnership in which a subsidiary
of the Company is a partner, through a series of contractors, modified these
aircraft from passenger to freighter configuration between 1988 and 1994.
22
26
On February 16, 2001, a jury found that GATX/Airlog breached its warranties
under the applicable aircraft modification agreements, and failed to disclose
information to the operators of the aircraft. On March 1, 2001, the jury awarded
Kalitta Air $47.5 million in damages plus applicable interest. Prior to March 1,
2001, the Company settled a related dispute with Evergreen International
Airlines, Inc., which had also been party to the litigation. The Company will
pursue all means of loss recovery including appeals and insurance coverage.
The Company recorded a pretax charge of $160.5 million in 2000 to accrue for its
obligations under the various settlement agreements and management's best
estimate of the company's potential liability under the judgement entered in
favor of Kalitta Air.
On February 13, 2001 the Company acquired the U.S. information technology
portfolio of El Camino Resources, Ltd., for $129.7 million in cash and the
assumption of $243.1 million of non-recourse debt. The portfolio, which consists
of information management systems on lease to businesses across the U.S., will
be combined with the Company's similar technology assets.
23
27
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of GATX Capital Corporation:
We have audited the accompanying consolidated balance sheets of GATX Capital
Corporation (a wholly owned subsidiary of GATX Corporation) and subsidiaries as
of December 31, 2000 and 1999, and the related consolidated statements of
operations, cash flows and changes in stockholder's equity for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of GATX Capital
Corporation and subsidiaries at December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
San Francisco, California
January 23, 2001
except for Note 15, as to which the date is
March 5, 2001
24
28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Items 10, 11, 12 & 13
Omitted under provisions of the reduced disclosure format.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial statements
The following consolidated financial statements of GATX Capital Corporation are
filed in response to Item 8:
Consolidated Statements of Operations for the years ended December 31,
2000, 1999, and 1998
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998
Consolidated Statements of Changes in Stockholder's Equity for the years
ended December 31, 2000, 1999, and 1998
Notes to Consolidated Financial Statements
2. Financial statement schedules
All financial statement schedules have been omitted because they are not
applicable or because required information is provided in the financial
statements, including the notes thereto, which are included in Item 8.
3. Exhibits Required by Item 601 of Regulation S-K
Exhibit Number
- --------------
3(a) Restated Certificate of Incorporation of the Company.(6)
3(b) By-laws of the Company.(1)
4(d) Term Loan Agreement between the Company and a Bank dated December 26,
1990.(2)
10(a) Office Leases, Four Embarcadero Center, dated October 1, 1990 and
June 1, 1991, between the Company and Four Embarcadero Center Venture.(2)
10(b) Tax Operating Agreement dated January 1, 1983 between GATX
Corporation and the Company.(3)
10(c) Credit Agreement among the Company, the Banks listed on Schedule I
thereto and Chase Manhattan Bank, as agent for the Banks, dated
July 1, 1998.(8)
10(d) Credit Agreement among the Company, its two subsidiaries operating
in Canada, and the Bank of Montreal, dated December 14, 1992.(4)
10(e) First Amendment, dated June 20, 1993 to Credit Agreement referred to in
10(d).(5)
10(f) Second Amendment, dated June 14, 1994, to Credit Agreement referred to in
10(d).(5)
10(g) Third Amendment, dated December 1, 1994, to Credit Agreement referred to
in 10(d).(5)
12 Ratio of Earnings to Fixed Charges.(7)
23 Consent of Independent Auditors.(7)
25
29
The Registrant agrees to furnish to the Commission upon request a copy of each
instrument with respect to issues of long-term debt of the Registrant the
authorized principal amount of which does not exceed 10% of the total assets of
Registrant.
(1) Incorporated by reference to Registration Statement on Form S-1, as
amended, (file number 2-75467) filed with the Commission on December
23, 1981, page II-4.
(2) Incorporated by reference to Form 10-K filed with the Commission on
March 30, 1991.
(3) Incorporated by reference to Form 10-K filed with the Commission on
March 28, 1983.
(4) Incorporated by reference to Form 10-K filed with the Commission on
March 31, 1993.
(5) Incorporated by reference to Form 10-K filed with the Commission on
March 27, 1995.
(6) Incorporated by reference to Form 10-K filed with the Commission on
March 28, 1996.
(7) Submitted to the Securities and Exchange Commission with the electronic
filing of this document.
(8) Incorporated by reference to Form 10Q filed with the
Commission on November 16, 1998.
Item 14(b). Reports of Form 8-K
Not Applicable.
26
30
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 CAPITAL CORPORATION
------------------------
(Registrant)
By /s/ Jesse V. Crews
-----------------------
Jesse V. Crews
President, Chief Executive Officer
and Director
March 30, 2001
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.
By /s/ Jesse V. Crews By /s/ Curt F. Glenn
- ----------------------- -----------------------
Jesse V. Crews Curt F. Glenn
President, Chief Executive Officer Senior Vice President and
and Director Chief Financial Officer
Dated: March 30, 2001 Dated: March 30, 2001
By /s/ Delphine M. Regalia By /s/ Brian A. Kenney
- ---------------------------- ------------------------
Delphine M. Regalia Brian A. Kenney
Principal Accounting Officer Director
and Controller
Dated: March 30, 2001 Dated: March 30, 2001
By /s/ Kathryn G. Jackson By /s/ Alan C. Coe
- --------------------------- --------------------
Kathryn G. Jackson Alan C. Coe
Executive Vice President Executive Vice President
and Director and Director
Dated: March 30, 2001 Dated: March 30, 2001
27