8-K 1 c64015e8-k.txt CURRENT REPORT 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ Form 8-K Current Report PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported) July 27, 2001 GATX Corporation (Exact Name of Registrant as Specified in its Charter) New York 1-2328 36-1124040 (State or other jurisdiction of (Commission file (I.R.S. employer incorporation) number) identification number) 500 West Monroe Street, Chicago, Illinois 60661-3676 (Address of principal executive offices) Registrant's telephone number, including area code (312) 621-6200 2 ITEM 5. OTHER EVENTS On July 24, 2001, GATX Corporation issued the following press release: CHICAGO, JULY 24 - GATX Corporation (NYSE:GMT) today announced its 2001 second quarter results. For the quarter, GATX reported consolidated net income of $21.6 million, or $.44 per diluted share compared to $41.5 million, or $.86 per diluted share in the prior year period. The second quarter 2001 results include a $30.6 million pre-tax write-down of telecommunication assets. For the six-month period ending June 30, GATX reported income of $192.3 million, or $3.90 per diluted share. Excluding the gain on the GATX Terminals sale and other non-recurring charges reported in the 2001 first quarter, income for the first six months was $53.2 million, or $1.08 per diluted share compared to income of $82.1 million, or $1.68 per diluted share in the prior year period. All comments from here forward in this press release regarding 2001 year-to-date results and outlook exclude the GATX Terminals-related gain and other non-recurring charges recorded in the 2001 first quarter. Ronald H. Zech, chairman and president of GATX, stated, "For the 2001 second quarter, increased pre-tax spread and remarketing income were more than offset by continued market weakness at GATX Rail and write-downs in GATX Capital's telecommunications portfolio. "At GATX Rail, we have experienced a decline in market conditions over the past 18 months, and this trend continues. The problem of excess railcar inventories has been compounded by a slowing economy. Our customers, especially those in the chemical industry, are experiencing their own difficulties and demand for railcars has declined accordingly. GATX Rail posted second quarter net income of $11.5 million compared to $17.9 million in the prior year period and $12.1 million in the 2001 first quarter. While the level of our concern regarding current conditions in the rail sector remains high, we remain positive about the long-term fundamentals of this business. "Financial Services, comprised primarily of GATX Capital, posted second quarter net income of $14.3 million compared to $21.1 million in the prior year period. Although pre-tax spread increased and remarketing income was particularly strong, further weakness in its 3 Page 2 telecommunications portfolio caused GATX Capital to write down $30.6 million of telecommunication assets that were deemed impaired. "During the second quarter, GATX's telecommunications exposure was reduced to $125 million, or 2% of total assets. This $50 million reduction from the prior quarter was comprised of the $30.6 million write-down and approximately $20 million of principal repayments and amortization. We will continue to aggressively reduce our remaining telecommunications exposure, a strategy that will suppress near-term earnings as we attempt to bring this issue to a prompt closure, maximize recovery of our investment, and minimize future uncertainty surrounding the ultimate impact of GATX's telecommunications exposure. "Looking at the remainder of 2001, providing an EPS outlook that incorporates telecommunications-related losses is impractical given the uncertainty of potential additional charges in that area. Excluding telecommunications-related losses, we currently expect 2001 income of approximately $2.20 per share on a diluted basis. This 2001 expectation incorporates three key assumptions: by opting to use the GATX Terminals sale proceeds conservatively, we estimate resulting 2001 earnings dilution to be approximately $.25 per share; GATX Rail is expected to post full year income of approximately $40 million; and Financial Services is expected to post income in the range of $65-$70 million, excluding telecommunications-related losses. Mr. Zech added, "The dilutive impact of the Terminals sale warrants further comment. When we initiated the sale process over one year ago, we anticipated taking a more aggressive approach for the use of the sale proceeds, thereby minimizing the dilutive earnings impact of the sale. Over the course of the past year, however, the economic environment has worsened, and we have adjusted our approach toward the use of proceeds accordingly. By using the bulk of the proceeds to substantially enhance our liquidity and improve our capital structure, we have positioned GATX to take full advantage of market opportunities that arise during periods of economic uncertainty. However, this strategy has a meaningful negative impact on 2001 earnings. Ultimately, we are confident that this dilutive trend will reverse as we continue to invest in our core businesses. 4 Page 3 Mr. Zech concluded, "While 2001 year-to-date has been challenging, I am encouraged by a number of important and positive events that occurred during the first half of this year, including the El Camino acquisition, the Pembroke air joint venture, completion of a new labor agreement at GATX Rail, and a sizeable international railcar acquisition. As we work diligently to improve our near-term performance, these events, coupled with a strong position in our core markets, provide the basis for our long-term optimism." FINANCIAL SERVICES Financial Services, comprised principally of GATX Capital, reported second quarter income of $14.3 million compared to $21.1 million in the prior year period. For the six-month period, Financial Services reported income of $25.8 million compared to $44.0 million in the prior year period. Investment volume totaled $361 million during the second quarter compared to $407 million in the prior year period. For the first half of 2001, investment volume totaled $1.1 billion compared to $732 million in the prior year period. The increased year-to-date volume reflects continued growth in the company's air and technology businesses, including select portfolio acquisitions in these sectors. For the second quarter, pre-tax spread totaled $46.7 million compared to $42.2 million in the prior year period. Annualized pre-tax spread in the second quarter was 4.7% of average net investments compared to 5.4% in the prior year period and 5.0% in the 2001 first quarter. Higher lease and interest income drove the increase in pre-tax spread, more than off-setting a decline in affiliate income which can be attributed to abnormally high affiliate income in the year ago period. Second quarter remarketing income, comprised of both gains on asset sales and residual sharing fees, was $50.3 million compared to $9.3 million in the prior year period. For the six-month period, remarketing gains totaled $64.7 million compared to $18.7 million in the prior year period. The increased remarketing income was driven by strong secondary market activity in air and certain other diversified assets. 5 Page 4 Warrant income totaled $12.4 million in the second quarter compared to $8.6 million in the prior year period. For the six-month period, warrant income totaled $27.6 million compared to $22.6 million in the prior year period. Reflecting gains realized during the second quarter, the pre-tax unrealized gains decreased to $12.7 million at the end of the second quarter from $23.5 million at the end of the 2001 first quarter. Loss provisions totaled $16.1 million in the quarter compared to $2.0 million in the prior year period. The allowance for loss was 6.2% of reservable assets at the end of the second quarter compared to 5.8% in the prior quarter and 8.2% in the year ago period. In addition to the $30.6 million telecommunications impaired asset write-down, net charge-offs of reservable assets during the second quarter totaled $12.9 million. Total write-downs and net charge-offs in the second quarter were 1.1% of average net investments compared to .17% in the prior year period and .32% in the 2001 first quarter. For the six-month period, write-downs and net charge-offs totaled $55.7 million, or 1.5% of average net investments compared to .36% in the prior year period. GATX RAIL GATX Rail reported income of $11.5 million in the 2001 second quarter compared to $17.9 million in the prior year period, and $12.1 million in the 2001 first quarter. For the six-month period, GATX Rail reported net income of $23.6 million compared to $36.4 million in the prior year period. Utilization and lease rates remain under pressure, as chemical companies have reduced manufacturing capacity in response to economic conditions. Industry-wide chemical railcar loadings declined 6% on a comparable basis through the first half of 2001, and U.S. manufacturing capacity utilization is at a 15-year low. Utilization of GATX Rail's North American full service fleet was 91% at the end of the second quarter, down from 92% in the 2001 first quarter and 93% in the prior year period. GATX Rail continues to take steps to address market weakness. New car order activity has been limited primarily to customer-specific requests, and as a result new car deliveries in the second quarter totaled only 860 cars compared to 1,500 new car deliveries in the prior year period. GATX 6 Page 5 Rail's full service North American fleet included 91,600 cars at the end of the second quarter, essentially flat with year-end 2000 levels. COMPANY DESCRIPTION GATX Corporation (NYSE: GMT) is a specialized finance and leasing company. It uniquely combines asset knowledge and services, structuring expertise, creative partnering and risk capital to provide business solutions to customers and partners worldwide. GATX specializes in railcar and locomotive leasing, aircraft operating leasing, information technology leasing, venture finance and diversified finance. TELECONFERENCE INFORMATION GATX Corporation will host a teleconference to discuss second quarter results. Teleconference details are as follows: Tuesday, July 24th 3:00 PM Eastern Time Domestic Dial-In: 1-888-273-9887 International Dial-In: 1-612-332-0932 Call in details and real-time audio access are available at: www.gatx.com. Please access the call 15 minutes prior to the start time. Following the call, a replay will be available on the same site. FORWARD-LOOKING STATEMENTS This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This information may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. With respect to outlook comments within this release relating to the 2001 performance of GATX Rail Corporation, GATX Capital Corporation, and GATX Corporation, risks and uncertainties include, but are not limited to, general economic conditions, railcar lease rate and utilization levels, dynamics affecting customers within the chemical, petroleum and food industries, additional potential write-downs and/or provisions related to GATX's telecommunications portfolio, and general market conditions in the air, telecommunications, venture, and other large-ticket leasing industries. FOR FURTHER INFORMATION CONTACT: ANALYSTS AND INVESTORS Robert C. Lyons GATX Corporation 312-621-6633 Investor, corporate information and press releases may be found at http://www.gatx.com. A variety of current financial information, historical financial information, press releases and photographs are available at this site. GATX press releases may be obtained by accessing PR Newswire's Company News On-Call's automated fax service at 800-758-5804. The company identification number for GATX is 105121. --Tabular Follows-- 7 Page 6 GATX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------------ ------------------------------- 2001 2000 2001 2000 ------------ ------------- ------------ -------------- GROSS INCOME Revenues $ 422.6 $ 316.4 $ 778.6 $ 605.4 Share of affiliates' earnings 15.0 26.1 29.9 46.1 ------------ ------------- ------------ -------------- TOTAL GROSS INCOME 437.6 342.5 808.5 651.5 OWNERSHIP COSTS Depreciation and amortization 109.8 79.4 212.9 158.8 Interest, net 68.0 59.4 129.0 113.4 Operating lease expense 48.4 42.9 96.7 83.1 ------------ ------------- ------------ -------------- TOTAL OWNERSHIP COSTS 226.2 181.7 438.6 355.3 OTHER COSTS AND EXPENSES Operating expenses 61.0 52.0 124.1 82.8 Selling, general and administrative 66.3 51.1 123.6 92.2 Provision for possible losses 46.8 2.0 68.1 4.0 Fair value adjustments for derivatives (.7) - .4 - ------------ ------------- ------------ -------------- TOTAL OTHER COSTS AND EXPENSES 173.4 105.1 316.2 179.0 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 38.0 55.7 53.7 117.2 INCOME TAXES 15.5 23.3 26.8 47.2 ------------ ------------- ------------ -------------- INCOME FROM CONTINUING OPERATIONS 22.5 32.4 26.9 70.0 DISCONTINUED OPERATIONS Operating results, net of income taxes (.9) 4.4 1.5 7.4 Gain on sale of portion of segment, net of income - 4.7 163.9 4.7 taxes ------------ ------------- ------------ -------------- TOTAL DISCONTINUED OPERATIONS (.9) 9.1 165.4 12.1 ------------ ------------- ------------ -------------- NET INCOME $ 21.6 $ 41.5 $ 192.3 $ 82.1 ============ ============= ============ ============== PER SHARE DATA Basic: Income from continuing operations $ .46 $ .68 $ .56 $ 1.46 (Loss) Income from discontinued operations (.01) .19 3.41 .25 ------------ ------------- ------------ -------------- Total $ .45 $ .87 $ 3.97 $ 1.71 Average number of common shares (in thousands) 48,495 47,583 48,378 48,012 Diluted: Income from continuing operations $ .46 $ .67 $ .55 $ 1.43 (Loss) Income from discontinued operations (.02) .19 3.35 .25 ------------ ------------- ------------ -------------- Total $ .44 $ .86 $ 3.90 $ 1.68 Average number of common shares and share Equivalents (in thousands) 49,287 48,606 49,314 48,892
Note: Certain amounts in the 2000 financial statements have been reclassified to conform to the current presentation. 8 Page 7 GATX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN MILLIONS)
JUNE 30 DECEMBER 31 2001 2000 ------------------- ------------------- ASSETS Cash and Cash Equivalents $ 362.3 $ 173.6 Receivables Trade accounts 62.5 93.7 Finance leases 1,013.0 878.3 Secured loans 613.3 538.0 Less - allowance for possible losses (111.0) (95.2) ------------------- ------------------- 1,577.8 1,414.8 Operating Lease Assets and Facilities, net 2,579.2 2,654.1 Investments in Affiliated Companies 1,130.6 951.2 Other Assets 491.1 439.1 Net Assets of Discontinued Operations 36.6 630.9 ------------------- ------------------- $ 6,177.6 $ 6,263.7 =================== =================== LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS' EQUITY Accounts Payable $ 269.3 $ 317.3 Accrued Expenses 189.6 127.4 Debt Short-term 384.9 557.2 Long-term: Recourse 2,755.6 3,093.9 Nonrecourse 639.0 494.2 Capital lease obligations 152.9 164.2 ------------------- ------------------- 3,932.4 4,309.5 Deferred Items, including Income Taxes 830.8 720.0 Total Shareholders' Equity 955.5 789.5 ------------------- ------------------- $ 6,177.6 $ 6,263.7 =================== ===================
9 Page 8 GATX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------- ---------------------------- 2001 2000 2001 2000 ---------- ---------- ----------- ------------- OPERATING ACTIVITIES Income from continuing operations $ 22.5 $ 32.4 26.9 $ 70.0 Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: Realized gains on remarketing of leased equipment (41.1) (10.0) (49.6) (19.7) Depreciation and amortization 109.8 79.4 212.9 158.8 Provision for possible losses 46.8 2.0 68.1 4.0 Deferred income taxes 5.9 6.0 110.0 35.0 Other, including working capital (38.5) (8.5) (234.2) (53.8) ------------ ----------- ------------ -------------- Net cash provided by continuing operations 105.4 101.3 134.1 194.3 INVESTING ACTIVITIES Additions to operating lease assets and facilities (62.7) (135.7) (101.7) (291.6) Additions to equipment on lease, net of nonrecourse financing for leveraged leases (135.9) (158.1) (401.9) (289.3) Secured loans extended (122.9) (102.6) (203.4) (216.5) Investments in affiliated companies (79.3) (71.6) (220.4) (121.1) Other investments and progress payments (16.0) (96.4) (129.7) (104.2) ------------ ----------- ------------ -------------- Portfolio investments and capital additions (416.8) (564.4) (1,057.1) (1,022.7) Portfolio proceeds 277.4 121.2 525.8 220.4 Proceeds from other asset sales 191.4 288.2 196.4 292.6 ------------ ----------- ------------ -------------- Net cash provided by (used in) investing activities of continuing operations 52.0 (155.0) (334.9) (509.7) FINANCING ACTIVITIES Proceeds from issuance of long-term debt 230.0 659.1 292.0 780.8 Repayment of long-term debt (447.9) (551.8) (751.9) (608.7) Net (decrease) increase in short-term debt (216.8) (121.6) (172.3) 208.8 Repayment of capital lease obligations (3.1) (3.3) (11.3) (9.4) Issuance (repurchase) of common stock and other 2.4 (14.7) 14.1 (41.2) Cash dividends (15.1) (14.2) (30.1) (28.7) ------------ ----------- ------------ -------------- Net cash (used in) provided by financing activities of continuing operations (450.5) (46.5) (659.5) 301.6 NET TRANSFERS FROM (TO) DISCONTINUED OPERATIONS - 8.6 (7.6) (58.4) ------------ ----------- ------------ -------------- NET DECREASE IN CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS (293.1) (91.6) (867.9) (72.2) PROCEEDS FROM SALE OF PORTION OF SEGMENT 115.7 74.7 1,144.1 74.7 TAXES PAID ON GAIN FROM SALE OF SEGMENT (87.5) - (87.5) - NET DECREASE IN CASH AND CASH EQUIVALENTS FROM DISCONTINUED OPERATIONS - (2.0) (12.6) (.2) ------------ ----------- ------------ -------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (264.9) $ (18.9) $ 176.1 $ 2.3 ============ =========== ============ ==============
10 Page 9 GATX CORPORATION AND SUBSIDIARIES SUPPLEMENTARY DATA (UNAUDITED) (IN MILLIONS, EXCEPT EARNINGS PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------------------- ---------------------------------- 2001 2000 2001 2000 --------------- --------------- -------------- --------------- GATX CORPORATION Basic net income per share: Income from continuing operations $ .46 $ .68 $ .56 $ 1.46 (Loss) Income from discontinued operations (.01) .19 3.41 .25 --------------- --------------- -------------- --------------- Total $ .45 $ .87 $ 3.97 $ 1.71 Diluted net income per share: Income from continuing operations $ .46 $ .67 $ .55 $ 1.43 (Loss) Income from discontinued operations (.02) .19 3.35 .25 --------------- --------------- -------------- --------------- Total $ .44 $ .86 $ 3.90 $ 1.68 Revenues $ 422.6 $ 316.4 $ 778.6 $ 605.4 Share of Affiliates' Earnings 15.0 26.1 29.9 46.1 --------------- --------------- -------------- --------------- Gross Income 437.6 342.5 808.5 651.5 Income from Continuing Operations before Income Taxes 38.0 55.7 53.7 117.2 Income from Continuing Operations 22.5 32.4 26.9 70.0 (Loss) Income from Discontinued Operations (.9) 9.1 165.4 12.1 --------------- --------------- -------------- --------------- Net Income $ 21.6 $ 41.5 $ 192.3 $ 82.1 Equity 955.5 837.4 Return on Average Equity (a) 12.0% 19.1% Assets of Continuing Operations 5,932.2 5,199.3 Net Asset of Discontinued Operations 36.6 681.5 Intersegment and Other Assets 208.8 (19.7) --------------- --------------- Total Assets 6,177.6 5,861.1 Return on Average Total Owned Assets (a) 1.71% 2.75%
11 Page 10 GATX CORPORATION AND SUBSIDIARIES SUPPLEMENTARY DATA (UNAUDITED) (IN MILLIONS, EXCEPT EARNINGS PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------------- ----------------------------------- 2001 2000 2001 2000 -------------- ------------- -------------- -------------- FINANCIAL SERVICES Revenues $ 271.9 $ 173.2 $ 485.6 $ 323.2 Share of Affiliates' Earnings 13.6 25.3 27.6 44.2 -------------- ------------- -------------- -------------- Gross Income 285.5 198.5 513.2 367.4 Depreciation and Amortization 83.8 53.9 161.7 106.4 Interest 55.9 43.6 111.6 81.8 Operating Lease Expense 12.6 11.6 25.3 22.9 Income before Income Taxes 23.6 35.4 42.7 72.8 Net Income $ 14.3 $ 21.1 $ 25.8 $ 44.0 Net Investments 3,976.0 3,233.7 Other Assets (b) 342.5 341.6 -------------- ------------- Total Assets 4,318.5 3,575.3 Common Equity 586.6 432.5 GATX CAPITAL ONLY New Investment Volume 360.8 406.5 1,115.4 732.2 Portfolio Pre-Tax Spread (c) 46.7 42.2 93.5 78.8 Annualized Pre-Tax Spread as % of Average Net Investments 4.7% 5.4% 4.9% 5.3% Asset remarketing: Disposition Gains on Owned Assets 41.0 8.6 49.5 17.9 Residual Sharing Fees 9.3 .7 15.2 .8 Warrant Income 12.4 8.6 27.6 22.6 GATX RAIL Revenues $ 151.7 $ 144.3 $ 294.4 $ 284.5 Share of Affiliates' Earnings 1.4 .8 2.3 1.9 --------------- ------------- -------------- -------------- Gross Income 153.1 145.1 296.7 286.4 Depreciation and Amortization 25.0 24.5 49.4 50.3 Interest 12.8 13.8 25.7 28.5 Operating Lease Expense 36.2 31.8 71.5 61.1 Income before Income Taxes 19.2 29.0 14.2 58.3 Net Income $ 11.5 $ 17.9 $ 7.4 $ 36.4 Assets 1,613.8 1,624.0 Equity 363.8 337.0 North American Fleet Fleet Additions 1,200 1,800 1,600 3,900 Total Fleet 91,600 91,500 91,600 91,500 Utilization 91% 93% 91% 93% ---------------------------------------------------------------------------------------------------------------------------------
(a) Excludes 4Q00 litigation and reserve and 1Q01 Terminals gain (b) Includes marine operating assets (c) Lease, interest and affiliate income less ownership costs 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GATX CORPORATION ----------------------------------- (Registrant) /s/ Brian A. Kenney ----------------------------------- Brian A. Kenney Vice President and Chief Financial Officer (Duly Authorized Officer) Date: July 27, 2001