e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 1-2328
GATX Corporation
(Exact name of registrant as specified in its charter)
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New York
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36-1124040 |
(State of incorporation)
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(I.R.S. Employer Identification No.) |
222 West Adams Street
Chicago, Illinois 60606-5314
(Address of principal executive offices, including zip code)
(312) 621-6200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of September 30, 2010, 46.3 million common shares were outstanding.
GATX CORPORATION
FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2010
INDEX
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($ in millions, except share data)
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September 30 |
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December 31 |
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2010 |
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2009 |
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Assets |
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Cash and Cash Equivalents |
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$ |
23.6 |
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$ |
41.7 |
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Restricted Cash |
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32.0 |
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33.2 |
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Receivables |
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Rent and other receivables |
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69.2 |
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68.7 |
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Finance leases |
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324.3 |
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309.7 |
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Less: allowance for possible losses |
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(12.9 |
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(13.4 |
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380.6 |
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365.0 |
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Operating Assets and Facilities |
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Rail (includes $123.6 relating to a consolidated VIE at September 30, 2010) |
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5,327.0 |
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5,449.0 |
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Specialty |
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263.1 |
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245.4 |
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ASC |
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387.6 |
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380.2 |
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Less: allowance for depreciation (includes $12.2 relating to a consolidated VIE at Sept. 30, 2010) |
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(2,037.0 |
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(2,041.3 |
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3,940.7 |
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4,033.3 |
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Investments in Affiliated Companies |
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462.2 |
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452.2 |
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Goodwill |
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94.0 |
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97.5 |
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Other Assets |
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200.4 |
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183.5 |
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Total Assets |
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$ |
5,133.5 |
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$ |
5,206.4 |
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Liabilities and Shareholders’ Equity |
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Accounts Payable and Accrued Expenses |
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$ |
123.9 |
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$ |
123.0 |
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Debt |
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Commercial paper and borrowings under bank credit facilities |
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72.0 |
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70.8 |
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Recourse |
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2,534.6 |
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2,553.0 |
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Nonrecourse (includes $61.3 relating to a consolidated VIE at September 30, 2010) |
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222.7 |
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234.2 |
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Capital lease obligations |
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50.3 |
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54.8 |
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2,879.6 |
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2,912.8 |
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Deferred Income Taxes |
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742.2 |
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730.6 |
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Other Liabilities |
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289.2 |
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337.4 |
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Total Liabilities |
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4,034.9 |
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4,103.8 |
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Shareholders’ Equity |
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Preferred stock ($1.00 par value, 5,000,000 shares authorized, 16,816 and 17,046 shares of Series
A and B $2.50 Cumulative Convertible Preferred Stock issued and outstanding as of September 30,
2010 and December 31, 2009, respectively, aggregate liquidation preference of $1.0) |
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* |
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* |
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Common stock ($0.625 par value, 120,000,000 authorized, 65,421,069 and 65,224,956 shares issued
and 46,298,549 and 46,101,570 shares outstanding as of September 30, 2010 and December 31, 2009,
respectively) |
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40.9 |
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40.6 |
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Additional paid in capital |
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621.5 |
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616.8 |
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Retained earnings |
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1,110.9 |
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1,090.0 |
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Accumulated other comprehensive loss |
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(114.4 |
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(84.5 |
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Treasury stock at cost (19,122,520 shares at September 30, 2010 and 19,123,386 at December 31,
2009) |
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(560.3 |
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(560.3 |
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Total Shareholders’ Equity |
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1,098.6 |
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1,102.6 |
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Total Liabilities and Shareholders’ Equity |
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$ |
5,133.5 |
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$ |
5,206.4 |
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* |
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Less than $0.1 million. |
The accompanying notes are an integral part of these consolidated financial statements.
1
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in millions, except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30 |
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September 30 |
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2010 |
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2009 |
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2010 |
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2009 |
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Gross Income |
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Lease income |
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$ |
216.1 |
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$ |
223.0 |
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$ |
651.0 |
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$ |
678.9 |
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Marine operating revenue |
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64.8 |
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36.3 |
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125.5 |
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75.7 |
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Asset remarketing income |
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10.1 |
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3.1 |
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28.4 |
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25.2 |
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Other income |
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17.7 |
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14.2 |
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55.6 |
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42.6 |
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Revenues |
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308.7 |
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276.6 |
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860.5 |
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822.4 |
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Share of affiliates’ earnings |
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5.7 |
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15.6 |
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30.6 |
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23.0 |
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Total Gross Income |
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314.4 |
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292.2 |
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891.1 |
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845.4 |
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Ownership Costs |
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Depreciation |
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54.3 |
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55.3 |
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161.1 |
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161.8 |
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Interest expense, net |
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41.3 |
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40.3 |
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125.1 |
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125.1 |
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Operating lease expense |
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35.0 |
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34.2 |
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104.4 |
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101.7 |
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Total Ownership Costs |
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130.6 |
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129.8 |
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390.6 |
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388.6 |
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Other Costs and Expenses |
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Maintenance expense |
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65.7 |
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65.8 |
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198.7 |
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195.3 |
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Marine operating expense |
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43.7 |
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25.8 |
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85.2 |
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51.0 |
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Selling, general and administrative |
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31.0 |
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34.8 |
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97.3 |
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101.9 |
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Other expense |
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15.1 |
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8.8 |
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39.5 |
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22.2 |
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Total Other Costs and Expenses |
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155.5 |
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135.2 |
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420.7 |
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370.4 |
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Income before Income Taxes |
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28.3 |
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27.2 |
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79.8 |
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86.4 |
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Income Taxes |
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7.2 |
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7.6 |
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18.5 |
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26.5 |
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Net Income |
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$ |
21.1 |
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$ |
19.6 |
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$ |
61.3 |
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$ |
59.9 |
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Per Share Data |
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Basic |
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$ |
0.45 |
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$ |
0.43 |
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$ |
1.33 |
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$ |
1.28 |
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Average number of common shares (in millions) |
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46.2 |
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45.9 |
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46.1 |
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46.8 |
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Diluted |
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0.45 |
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0.42 |
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1.31 |
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1.24 |
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Average number of common shares and common
share equivalents (in millions) |
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46.7 |
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48.0 |
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47.0 |
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48.9 |
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Dividends declared per common share |
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$ |
0.28 |
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$ |
0.28 |
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$ |
0.84 |
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$ |
0.84 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
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Nine Months Ended |
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September 30 |
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2010 |
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2009 |
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Operating Activities |
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Net income |
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$ |
61.3 |
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$ |
59.9 |
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Adjustments to reconcile income to net cash provided by operating activities: |
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Gains on sales of assets |
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(35.1 |
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(16.9 |
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Depreciation |
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169.3 |
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168.4 |
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Reversal of provision for losses |
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(0.2 |
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(5.8 |
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Asset impairment charges |
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5.8 |
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7.7 |
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Deferred income taxes |
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12.7 |
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18.2 |
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Share of affiliates’ earnings, net of dividends |
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(1.4 |
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(10.9 |
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Change in income taxes payable |
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(4.9 |
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(9.6 |
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Change in accrued operating lease expense |
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(38.2 |
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(34.6 |
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Employee benefit plans |
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(20.2 |
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(43.7 |
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Other |
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1.5 |
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(0.7 |
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Net cash provided by operating activities |
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150.6 |
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132.0 |
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Investing Activities |
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Additions to operating assets and facilities |
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(219.5 |
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(315.0 |
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Investments in affiliates |
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(24.9 |
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(61.2 |
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Other |
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(0.1 |
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(0.3 |
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Portfolio investments and capital additions |
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(244.5 |
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(376.5 |
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Purchases of leased-in assets |
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(1.5 |
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(10.7 |
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Portfolio proceeds |
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55.4 |
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55.2 |
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Proceeds from sales of other assets |
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21.9 |
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17.0 |
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Proceeds from sale-leaseback |
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78.9 |
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45.7 |
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Net decrease in restricted cash |
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1.2 |
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3.7 |
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Other |
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— |
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33.1 |
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Net cash used in investing activities |
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(88.6 |
) |
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(232.5 |
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Financing Activities |
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Net proceeds from issuances of debt (original maturities longer than 90 days) |
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259.1 |
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636.5 |
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Repayments of debt (original maturities longer than 90 days) |
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(298.0 |
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(409.9 |
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Net increase (decrease) in debt with original maturities of 90 days or less |
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2.6 |
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(43.0 |
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Payments on capital lease obligations |
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(4.4 |
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(8.6 |
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Stock repurchases |
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— |
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(55.1 |
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Employee exercises of stock options |
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0.8 |
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— |
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Cash dividends |
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(40.3 |
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(39.4 |
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Other |
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— |
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0.7 |
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Net cash (used in) provided by financing activities |
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(80.2 |
) |
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81.2 |
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Effect of Exchange Rate Changes on Cash and Cash Equivalents |
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0.1 |
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0.7 |
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Net decrease in Cash and Cash Equivalents during the period |
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(18.1 |
) |
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(18.6 |
) |
Cash and Cash Equivalents at beginning of period |
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41.7 |
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102.2 |
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Cash and Cash Equivalents at end of period |
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$ |
23.6 |
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$ |
83.6 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. Description of Business
GATX Corporation (“GATX” or the “Company”) leases, operates and manages long-lived, widely
used assets in the rail, marine and industrial equipment markets. GATX also invests in joint
ventures that complement existing business activities. Headquartered in Chicago, Illinois, GATX has
three financial reporting segments: Rail, Specialty and American Steamship Company (“ASC”).
NOTE 2. Basis of Presentation
The accompanying unaudited consolidated financial statements of GATX Corporation and its
subsidiaries have been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by these accounting principles for complete financial statements. In the
opinion of management, all adjustments (which are of a normal recurring nature) considered
necessary for a fair presentation have been included. Operating results for the three and nine
months ended September 30, 2010, are not necessarily indicative of the results that may be achieved
for the entire year ending December 31, 2010. In particular, ASC’s fleet is generally inactive for
a significant portion of the first quarter of each year due to the winter conditions on the Great
Lakes. In addition, the timing of asset remarketing income is dependent, in part, on market
conditions and, therefore, does not occur evenly from period to period. For further information,
refer to the consolidated financial statements and footnotes for the year ended December 31, 2009,
as set forth in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange
Commission (“SEC”).
Accounting Adjustment
During the first quarter of 2010, the Company discovered a clerical error in the preparation
of its Consolidated Balance Sheet as of December 31, 2009, and Consolidated Statement of Cash Flows
for the quarter and year ended December 31, 2009. The error resulted in a $13.1 million
overstatement in each of cash and cash equivalents; accounts payable and accrued expenses; and net
cash provided by operating activities of continuing operations. Management has determined that the
effect of this error is immaterial to prior periods and adjusted its Consolidated Balance Sheet and
Consolidated Statement of Cash Flows in 2010 to correct this error.
Accounting Changes
As of January 1, 2010, GATX adopted newly issued authoritative accounting guidance that
revises the accounting and reporting for Variable Interest Entities (“VIEs”). The guidance
requires that a qualitative and quantitative analysis be completed each reporting period to
determine whether a VIE must be consolidated and further requires additional disclosures related to
significant judgments and assumptions considered in the analysis and the nature of risks associated
with the VIE. The application of this guidance had no impact on GATX’s financial position, results
of operations or cash flows; however, as of the adoption date, certain existing investments were
determined to be VIEs and in one instance, GATX was determined to be the primary beneficiary of an
entity that was previously consolidated. See Note 6 for additional details.
NOTE 3. Investments in Affiliated Companies
Investments in affiliated companies represent investments in, and loans to and from, domestic
and foreign companies and joint ventures that are in businesses similar to those of GATX, such as
lease financing and related services for customers operating rail, marine and industrial equipment
assets, as well as other business activities, including ventures that provide asset residual value
guarantees.
Operating results for all affiliated companies, assuming GATX held a 100% interest, would be
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30 |
|
September 30 |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Revenues |
|
$ |
155.5 |
|
|
$ |
160.8 |
|
|
$ |
488.9 |
|
|
$ |
489.5 |
|
Pre-tax income reported by affiliates |
|
|
15.7 |
|
|
|
30.2 |
|
|
|
57.8 |
|
|
|
40.1 |
|
4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 4. Fair Value Disclosure
The following tables set forth GATX’s assets and liabilities measured at fair value on a
recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
Significant |
|
Significant |
|
|
|
|
|
|
for Identical |
|
Observable |
|
Unobservable |
|
|
September 30, |
|
Assets |
|
Inputs |
|
Inputs |
|
|
2010 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives (a) |
|
$ |
21.9 |
|
|
$ |
— |
|
|
$ |
21.9 |
|
|
$ |
— |
|
Warrants and foreign exchange rate derivatives (b) |
|
|
1.3 |
|
|
|
— |
|
|
|
1.3 |
|
|
|
— |
|
Available for sale equity securities |
|
|
3.4 |
|
|
|
3.4 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives (a) |
|
|
9.1 |
|
|
|
— |
|
|
|
9.1 |
|
|
|
— |
|
Foreign exchange rate derivatives (b) |
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
Significant |
|
Significant |
|
|
|
|
|
|
for Identical |
|
Observable |
|
Unobservable |
|
|
December 31, |
|
Assets |
|
Inputs |
|
Inputs |
|
|
2009 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives (a) |
|
$ |
15.6 |
|
|
$ |
— |
|
|
$ |
15.6 |
|
|
$ |
— |
|
Warrants and foreign exchange rate
derivatives (b) |
|
|
1.6 |
|
|
|
— |
|
|
|
1.6 |
|
|
|
— |
|
Available for sale equity securities |
|
|
2.9 |
|
|
|
2.9 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives (a) |
|
|
4.2 |
|
|
|
— |
|
|
|
4.2 |
|
|
|
— |
|
Foreign exchange rate derivatives (b) |
|
|
* |
|
|
|
— |
|
|
|
* |
|
|
|
— |
|
|
|
|
* |
|
Less than $0.1 million |
|
(a) |
|
Designated as hedges |
|
(b) |
|
Not designated as hedges |
Available for sale equity securities are valued based on quoted prices in an active exchange
market. Warrants and derivative contracts are valued using a pricing model with inputs (such as
yield curves and credit spreads) that are observable in the market or can be derived principally
from or corroborated by observable market data.
In the first nine months of 2010, GATX performed nonrecurring Level 3 fair value measurements
for $3.8 million of rail assets with a carrying value of $9.6 million and recognized aggregate
impairment losses of $5.8 million, which were included in other expense. The fair values were
determined using discounted cash flow methodologies and third party appraisal data, as applicable.
Losses of $4.8 million (fair value of $3.0 million) were recorded in connection with an Association
of American Railroads industry-wide, regulatory mandate that resulted in a significant decrease to
the expected economic life of 358 aluminum hopper railcars and losses of $1.0 million (fair value
of $0.8 million) were recorded relating to scrapped wheelsets in Rail’s European fleet.
Derivative instruments
GATX recognizes all derivative instruments at fair value and classifies them on the balance
sheet as either other assets or other liabilities. Classification of derivative activity in the
statements of income and cash flows is generally determined by the nature of the hedged item.
Gains and losses on derivatives that are not accounted for as hedges are classified as other
operating expenses, and the related cash flows are included in cash flows from operating
activities. Although GATX does not hold or issue derivative financial instruments for purposes
other than hedging, certain derivatives
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
may not qualify for hedge accounting. Changes in the fair value of these derivatives are
recognized in earnings immediately.
Fair Value Hedges — GATX uses interest rate swaps to convert fixed rate debt to floating rate
debt and to manage the fixed to floating rate mix of its debt obligations. For fair value hedges,
changes in fair value of both the derivative and the hedged item are recognized in earnings as
interest expense. As of September 30, 2010, and December 31, 2009, GATX had three instruments
outstanding with aggregate notional amounts of $350.0 million and $385.0 million, respectively. As
of September 30, 2010, these derivatives had maturities ranging from 2012-2015.
Cash Flow Hedges — GATX uses interest rate swaps to convert floating rate debt to fixed rate
debt and to manage the fixed to floating rate mix of its debt obligations. GATX also uses interest
rate swaps and Treasury rate locks to hedge its exposure to interest rate risk on existing and
anticipated transactions. As of September 30, 2010, and December 31, 2009, GATX had 13 instruments
and 15 instruments outstanding, respectively, with aggregate notional amounts of $131.6 million and
$243.5 million, respectively. As of September 30, 2010, these derivatives had maturities ranging
from 2011-2015. Within the next 12 months, GATX expects to reclassify $6.4 million ($4.0 million
after tax) of net losses on previously terminated derivatives from accumulated other comprehensive
income (loss) to earnings. Amounts are reclassified when interest and operating expense related to
the hedged risks affect earnings.
Certain of GATX’s derivative instruments contain credit risk provisions that could require
GATX to make immediate payment on net liability positions in the event that GATX defaulted on a
certain portion of its outstanding debt obligations. The aggregate fair value of all derivative
instruments with credit risk related contingent features that are in a liability position as of
September 30, 2010, was $9.1 million. GATX is not required to post any collateral on its
derivative instruments and does not expect the credit risk provisions to be triggered.
In the event that a counterparty fails to meet the terms of the interest rate swap agreement
or a foreign exchange contract, GATX’s exposure is limited to the fair value of the swap if in
GATX’s favor. GATX manages the credit risk of counterparties by transacting only with institutions
that the Company considers financially sound and by avoiding concentrations of risk with a single
counterparty. GATX considers the risk of non-performance by a counterparty to be remote.
The income statement and other comprehensive income (loss) impacts of GATX’s derivative
instruments were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
Derivative |
|
|
|
September 30 |
|
September 30 |
Designation |
|
Location of Gain (Loss) Recognized |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Fair value hedges (a) |
|
Interest expense |
|
$ |
4.0 |
|
|
$ |
1.6 |
|
|
$ |
11.7 |
|
|
$ |
(6.1 |
) |
Cash flow hedges |
|
Amount recognized in other
comprehensive (loss) income
(effective portion) |
|
|
(2.7 |
) |
|
|
(2.4 |
) |
|
|
(10.9 |
) |
|
|
12.6 |
|
Cash flow hedges |
|
Amount reclassified from
accumulated other comprehensive
loss to interest expense
(effective portion) |
|
|
(2.0 |
) |
|
|
(2.2 |
) |
|
|
(5.7 |
) |
|
|
(4.4 |
) |
Cash flow hedges |
|
Amount reclassified from
accumulated other comprehensive
loss to operating lease expense
(effective portion) |
|
|
(0.4 |
) |
|
|
(0.8 |
) |
|
|
(1.2 |
) |
|
|
(1.2 |
) |
Cash flow hedges |
|
Amount recognized in other
expense (ineffective portion) |
|
|
— |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
|
(a) |
|
Equally offsetting the amount recognized in interest expense was the fair value adjustment
relating to the underlying debt. |
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Other Financial Instruments
The carrying amounts of cash and cash equivalents, restricted cash, money market funds, rent
and other receivables, accounts payable, commercial paper and bank credit facilities approximate
fair value due to the short maturity of those instruments. The fair values of investment funds
were based on the best information available and may include quoted investment fund values. The
fair values of fixed and floating rate debt, excluding convertible notes, were estimated based on
discounted cash flow analyses using interest rates currently offered for loans with similar terms
to borrowers of similar credit quality. Convertible notes were valued using third-party quotes.
The following table sets forth the carrying amounts and fair values of GATX’s other financial
instruments as of (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
December 31, 2009 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Funds |
|
$ |
8.0 |
|
|
$ |
11.7 |
|
|
$ |
10.5 |
|
|
$ |
11.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
41.9 |
|
|
$ |
50.1 |
|
Recourse fixed rate debt |
|
|
2,191.6 |
|
|
|
2,372.3 |
|
|
|
2,174.3 |
|
|
|
2,253.0 |
|
Recourse floating rate debt |
|
|
343.0 |
|
|
|
342.7 |
|
|
|
336.8 |
|
|
|
334.5 |
|
Nonrecourse debt |
|
|
222.7 |
|
|
|
239.3 |
|
|
|
234.2 |
|
|
|
249.7 |
|
NOTE 5. Commercial Commitments
In connection with certain investments or transactions, GATX has entered into various
commercial commitments, such as guarantees and standby letters of credit, which could potentially
require performance in the event of demands by third parties. Similar to GATX’s balance sheet
investments, these guarantees expose GATX to credit, market and equipment risk; accordingly, GATX
evaluates its commitments and other contingent obligations using techniques similar to those used
to evaluate funded transactions.
The following table sets forth GATX’s commercial commitments as of (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2010 |
|
|
2009 |
|
Affiliate guarantees |
|
$ |
30.0 |
|
|
$ |
38.1 |
|
Asset residual value guarantees |
|
|
50.0 |
|
|
|
49.5 |
|
Lease payment guarantees |
|
|
53.1 |
|
|
|
59.2 |
|
Other |
|
|
— |
|
|
|
77.8 |
|
|
|
|
|
|
|
|
Total guarantees (a) |
|
|
133.1 |
|
|
|
224.6 |
|
Standby letters of credit and bonds |
|
|
10.8 |
|
|
|
13.8 |
|
|
|
|
|
|
|
|
|
|
$ |
143.9 |
|
|
$ |
238.4 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
At September 30, 2010 and December 31, 2009, the carrying value of liabilities on the
balance sheet for guarantees were $7.5 million and $8.1 million, respectively. The expirations of
these guarantees range from 2010 to 2019. GATX is not aware of any event that would require it to
satisfy these guarantees. |
Affiliate guarantees generally involve guaranteeing repayment of the financing utilized to
acquire or lease in assets and are in lieu of making direct equity investments in the affiliate.
GATX 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.
Asset residual value guarantees represent GATX’s commitment to third parties that an asset or
group of assets will be worth a specified amount at the end of a lease term. GATX earns an initial
fee for providing these asset value guarantees, which is amortized into income over the guarantee
period. Upon disposition of the assets, GATX receives a share of any proceeds in excess of the
amount guaranteed and such residual sharing gains are recorded in asset remarketing income. If, at
the end of the lease term, the net realizable value of the asset is less than the guaranteed
amount, any liability resulting from GATX’s performance pursuant to the residual value guarantee
will be reduced by the value realized from disposition of the
asset. Asset residual value guarantees include those related to assets of affiliated
companies.
7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Lease payment guarantees represent GATX’s guarantees to financial institutions of finance and
operating lease payments to unrelated parties in exchange for a fee. Any liability resulting from
GATX’s performance pursuant to the lease payment guarantees will be reduced by the value realized
from the underlying asset or group of assets.
Other in 2009 consisted of GATX’s potential reimbursement obligation to Airbus S.A.S.
(“Airbus”) for amounts Airbus may have been required to pay to GATX Flightlease Aircraft Company
Ltd. (“GFAC”), a joint venture partially owned by GATX, in connection with an aircraft purchase
contract entered into by GFAC and Airbus in 2001. The aircraft purchase contract and other
agreements relating thereto had been the subject of various litigation proceedings, which were
resolved in the second quarter of 2010.
GATX and its subsidiaries are also parties to standing letters of credit and bonds primarily
related to workers’ compensation and general liability insurance coverages. No material claims have
been made against these obligations. At September 30, 2010, GATX does not expect any material
losses to result from these off balance sheet instruments since performance is not anticipated to
be required.
NOTE 6. Variable Interest Entities
GATX determines whether an entity is a VIE based on the sufficiency of the entity’s equity and
whether the equity holders have the characteristics of a controlling financial interest. To
determine if it is the primary beneficiary of a VIE, GATX assesses whether it has the power to
direct the activities that most significantly impact the economic performance of the VIE and the
obligation to absorb losses or the right to receive benefits that may be significant to the VIE.
These determinations are both qualitative and quantitative in nature and require certain judgments
and assumptions about the VIE’s forecasted financial performance and the volatility inherent in
those forecasted results. GATX evaluates new investments for VIE determination and regularly
reviews all existing entities for any events that may result in an entity becoming a VIE or in GATX
becoming the primary beneficiary of an existing VIE.
GATX is the primary beneficiary of a consolidated VIE related to a structured lease financing
for a portfolio of railcars because it has the power to direct the significant activities of the
VIE through its ownership of the equity interests in the transaction. The carrying amounts of
assets and liabilities of the VIE that GATX consolidates were as follows (in millions):
|
|
|
|
|
|
|
September 30 |
|
|
2010 |
Operating assets, net of accumulated depreciation (a) |
|
$ |
111.4 |
|
Nonrecourse debt |
|
|
61.3 |
|
|
|
|
(a) |
|
All operating assets are pledged as collateral on the nonrecourse debt |
GATX is also involved with other entities determined to be VIEs for which GATX is not the
primary beneficiary. These VIEs primarily relate to operating leases, leveraged leases and certain
investments in affiliates. These VIEs are involved in railcar and equipment leasing activities and
have been financed through a mix of equity investments and third party lending arrangements. GATX
determined that it is not the primary beneficiary of these VIEs because it does not have the power
to direct the activities that most significantly impact the entities’ economic performance. For
certain investments in affiliates determined to be VIEs, GATX concluded that power was shared among
the affiliate partners based on the terms of the relevant joint venture agreements, which require
approval of all partners for significant decisions involving the VIE.
8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The carrying amounts and maximum exposure to loss with respect to VIEs that GATX does not
consolidate were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Net |
|
|
Maximum |
|
|
Net |
|
|
Maximum |
|
|
|
Carrying |
|
|
Exposure |
|
|
Carrying |
|
|
Exposure |
|
|
|
Amount |
|
|
to Loss |
|
|
Amount |
|
|
to Loss |
|
Investments in affiliates (a) |
|
$ |
64.5 |
|
|
$ |
64.5 |
|
|
$ |
42.1 |
|
|
$ |
50.2 |
|
Leveraged leases |
|
|
72.9 |
|
|
|
72.9 |
|
|
|
73.4 |
|
|
|
73.4 |
|
Other investment |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
138.4 |
|
|
$ |
138.4 |
|
|
$ |
116.5 |
|
|
$ |
124.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The difference in 2009 between the carrying value and the maximum exposure to loss
related to GATX’s guarantee of an affiliate’s lease obligation. The guarantee was
eliminated upon GATX’s acquisition of the railcars from the affiliate and the subsequent
termination of the entity. |
NOTE 7. Comprehensive Income
The components of comprehensive income (loss) were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net income |
|
$ |
21.1 |
|
|
$ |
19.6 |
|
|
$ |
61.3 |
|
|
$ |
59.9 |
|
Other comprehensive income, net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
44.3 |
|
|
|
33.9 |
|
|
|
(28.2 |
) |
|
|
17.1 |
|
Unrealized gain (loss) on securities |
|
|
0.1 |
|
|
|
— |
|
|
|
0.8 |
|
|
|
(0.5 |
) |
Unrealized (loss) gain on derivative
instruments |
|
|
— |
|
|
|
— |
|
|
|
(4.5 |
) |
|
|
2.5 |
|
Post retirement benefit plans |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
2.0 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
65.7 |
|
|
$ |
53.8 |
|
|
$ |
31.4 |
|
|
$ |
79.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 8. Share-Based Compensation
In the first nine months of 2010, GATX granted 368,700 stock appreciation rights (“SARs”),
74,440 restricted stock units, 75,730 performance shares and 20,844 phantom stock units. For the
three and nine months ended September 30, 2010, total share-based compensation expense was $1.6
million ($1.0 million after tax) and $5.0 million ($3.1 million after tax), respectively. For the
three and nine months ended September 30, 2009, total share-based compensation expense was $1.9
million ($1.1 million after tax) and $5.0 million ($3.1 million after tax), respectively.
The weighted average estimated fair value of GATX’s 2010 SAR awards and underlying assumptions
thereof are noted in the table below. The vesting period for the 2010 SAR grant is three years,
with 1/3 vesting after each year.
|
|
|
|
|
|
|
2010 |
Weighted average fair value of SAR award |
|
$ |
11.13 |
|
Annual dividend |
|
$ |
1.12 |
|
Expected life of the SAR, in years |
|
|
4.3 |
|
Risk free interest rate |
|
|
2.0 |
% |
Dividend yield |
|
|
4.3 |
% |
Expected stock price volatility |
|
|
41.78 |
% |
NOTE 9. Income Taxes
GATX’s effective tax rate was 23% for the nine months ended September 30, 2010, compared to
31% for the nine months ended September 30, 2009. In the current year, GATX’s liability for
unrecognized tax benefits was reduced by $3.7 million in connection with the close of various
federal and foreign tax audits. Additionally, a $1.9 million deferred tax
benefit was recognized in connection with a reduction in the statutory tax rates in the United
Kingdom. In 2009, a change in
9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
the functional currency tax election of a foreign wholly-owned
subsidiary resulted in the recognition of a $2.4 million deferred tax benefit. Excluding the effect
of these tax benefits from each year, GATX’s effective tax rate for the first nine months of 2010
and 2009 was 30% and 33%, respectively. The difference between the 2010 and 2009 effective tax
rates was driven by variability in the mix of domestic and foreign sourced pre-tax earnings, which
are taxed at different rates.
As of September 30, 2010, GATX’s gross liability for unrecognized tax benefits totaled $52.2
million, which, if fully recognized, would decrease income tax expense by $33.1 million ($31.0
million net of federal tax).
NOTE 10. Pension and Other Post-Retirement Benefits
The components of pension and other post-retirement benefit costs for the three months ended
September 30, 2010 and 2009, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Retiree |
|
|
2009 Retiree |
|
|
|
2010 Pension |
|
|
2009 Pension |
|
|
Health and |
|
|
Health and |
|
|
|
Benefits |
|
|
Benefits |
|
|
Life |
|
|
Life |
|
Service cost |
|
$ |
1.2 |
|
|
$ |
1.2 |
|
|
$ |
(0.1 |
) |
|
$ |
0.1 |
|
Interest cost |
|
|
5.6 |
|
|
|
5.8 |
|
|
|
0.6 |
|
|
|
0.8 |
|
Expected return on plan assets |
|
|
(8.5 |
) |
|
|
(7.9 |
) |
|
|
— |
|
|
|
— |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized prior service credit |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Unrecognized net actuarial loss (gain) |
|
|
1.1 |
|
|
|
0.7 |
|
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net costs (a) |
|
$ |
(0.8 |
) |
|
$ |
(0.4 |
) |
|
$ |
0.2 |
|
|
$ |
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of pension and other post-retirement benefit costs for the nine months ended
September 30, 2010 and 2009, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Retiree |
|
|
2009 Retiree |
|
|
|
2010 Pension |
|
|
2009 Pension |
|
|
Health and |
|
|
Health and |
|
|
|
Benefits |
|
|
Benefits |
|
|
Life |
|
|
Life |
|
Service cost |
|
$ |
4.0 |
|
|
$ |
3.6 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Interest cost |
|
|
16.6 |
|
|
|
17.6 |
|
|
|
1.8 |
|
|
|
2.2 |
|
Expected return on plan assets |
|
|
(25.1 |
) |
|
|
(23.1 |
) |
|
|
— |
|
|
|
— |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized prior service credit |
|
|
(0.8 |
) |
|
|
(0.8 |
) |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Unrecognized net actuarial loss (gain) |
|
|
4.5 |
|
|
|
2.1 |
|
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net costs (a) |
|
$ |
(0.8 |
) |
|
$ |
(0.6 |
) |
|
$ |
1.6 |
|
|
$ |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts reported herein are based on estimated annual costs. Actual annual costs for
the year ending December 31, 2010, may differ from these estimates. |
NOTE 11. Convertible Debt
In January 2010, GATX called the remaining outstanding balance of its convertible notes for
redemption. As a result, the holders of the notes exercised their conversion options and GATX paid
$41.9 million for the principal balance and issued 140,904 shares of GATX common stock for the
intrinsic value. Additionally, accrued interest of $0.1 million was forfeited upon conversion and
reclassified to additional paid in capital.
NOTE 12. Earnings Per Share
Basic earnings per share were computed by dividing net income available to common shareholders
by the weighted average number of shares of common stock outstanding during each period. Shares
issued or reacquired during the period, if applicable, were weighted for the portion of the period
that they were outstanding. Diluted earnings per share give effect to the impact of potentially
dilutive securities, including convertible preferred stock, employee stock options/SARs, restricted
stock and convertible debt.
10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following table sets forth the computation of basic and diluted net income per common
share (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
21.1 |
|
|
$ |
19.6 |
|
|
$ |
61.3 |
|
|
$ |
59.9 |
|
Less: Dividends paid and accrued on preferred stock |
|
|
* |
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share — income
available to common shareholders |
|
$ |
21.1 |
|
|
$ |
19.6 |
|
|
$ |
61.3 |
|
|
$ |
59.9 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Dividends paid and accrued on preferred stock |
|
|
* |
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
After-tax interest expense on convertible securities |
|
|
— |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share — income
available to common shareholders |
|
$ |
21.1 |
|
|
$ |
19.9 |
|
|
$ |
61.5 |
|
|
$ |
60.9 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share — weighted
average shares |
|
|
46.2 |
|
|
|
45.9 |
|
|
|
46.1 |
|
|
|
46.8 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans |
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.3 |
|
Convertible preferred stock |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Convertible securities |
|
|
— |
|
|
|
1.7 |
|
|
|
0.3 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share —
adjusted weighted average and assumed conversion |
|
|
46.7 |
|
|
|
48.0 |
|
|
|
47.0 |
|
|
|
48.9 |
|
|
Basic earnings per share |
|
$ |
0.45 |
|
|
$ |
0.43 |
|
|
$ |
1.33 |
|
|
$ |
1.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.45 |
|
|
$ |
0.42 |
|
|
$ |
1.31 |
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Less than $0.1 million. |
NOTE 13. Legal Proceedings and Other Contingencies
Various legal actions, claims assessments and other contingencies arising in the ordinary
course of business are pending against GATX and certain of its subsidiaries. These matters are
subject to many uncertainties, and it is possible that some of these matters could ultimately be
decided, resolved or settled adversely. For a discussion of these matters, please refer to Note 22
to the Company’s consolidated financial statements as set forth in GATX’s Annual Report on Form
10-K for the year ended December 31, 2009. Except as noted below, there have been no material
changes or developments in these matters.
Polskie Koleje Panstwowe S.A. v. DEC sp. z o.o.
In December 2005, Polskie Koleje Panstwowe S.A. (“PKP”) filed a complaint, Polskie Koleje
Panstwowe S.A. v. DEC sp. z o.o., in the Regional Court in Warsaw, Poland against DEC sp. z o.o.
(“DEC”), an indirect wholly-owned subsidiary of the Company currently named GATX Rail Poland, sp. z
o.o. The complaint alleges that, prior to GATX’s acquisition of DEC in 2001, DEC breached a
Conditional Sales Agreement (the “Agreement”) to purchase shares of Kolsped S.A. (“Kolsped”), an
indirect subsidiary of PKP. The allegedly breached condition required DEC to obtain a release of
Kolsped’s ultimate parent company, PKP, from its guarantee of Kolsped’s promissory note securing a
$9.8 million bank loan. Pursuant to an amendment to the Agreement, DEC satisfied this condition by
providing PKP with a blank promissory note (the “DEC Note”) and a promissory note declaration which
allowed PKP to fill in the DEC Note up to $10 million in the event a demand was made upon it as
guarantor of Kolsped’s note to the bank (the “Kolsped Note”). In May 1999, the then current holder
of the Kolsped Note, a bank (“Bank”), sued PKP under its guarantee. PKP lost the DEC Note and
therefore did not use it to satisfy the guarantee, and the Bank ultimately secured a judgment
against PKP in 2002. PKP also failed to notify DEC of the Bank’s lawsuit while the lawsuit was
pending.
After exhausting its appeals of the judgment entered against it, PKP filed suit against DEC in
December 2005,
alleging that DEC failed to fulfill its obligation to release PKP as a guarantor of the
Kolsped Note and is purportedly liable to
11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
PKP, as a third party beneficiary of the Agreement. DEC
has filed an answer to the complaint denying the material allegations and raising numerous
defenses, including, among others, that: (i) the Agreement did not create an actionable obligation,
but rather was a condition precedent to the purchase of shares in Kolsped; (ii) DEC fulfilled that
condition by issuing the DEC Note, which was subsequently lost by PKP and redeemed by a Polish
court; (iii) PKP was not a third party beneficiary of the Agreement; and (iv) the action is barred
by the governing limitations period. The first day of trial was held on March 5, 2008, and the
second and final day of trial was held on December 7, 2009. On February 16, 2010, the court issued
a written opinion in favor of DEC and rejecting all of PKP’s claims. An appeal by PKP is pending.
As of September 30, 2010, PKP’s claims for damages totaled approximately PLN 136.6 million, or
$47.0 million, which consists of the principal amount, interest and costs allegedly paid by it to
the Bank and statutory interest. Statutory interest would be assessed only if the Court of
Appeals, or the trial court on remand, ultimately awards damages to PKP, in which case interest
would be assessed on the amount of the award from the date of filing of the claim in December 2005,
to the date of the award. The Company has recorded an accrual of $15.5 million for this litigation
pending final resolution on appeal. While the ultimate resolution of this matter for an amount in
excess of this accrual is possible, the Company believes that any such excess would not be material
to its financial position or liquidity. However, such resolution could have a material adverse
effect on the results of operations in a particular quarter or fiscal year.
Viareggio Derailment
On June 29, 2009, a train consisting of fourteen liquefied petroleum gas (“LPG”) tank cars
owned by GATX Rail Austria GmbH (an indirect subsidiary of the Company, “GATX Rail Austria”) and
its subsidiaries derailed while passing through the city of Viareggio, Italy. Five tank cars
overturned and one of the overturned cars was punctured, resulting in a release of LPG, which
subsequently ignited. Thirty-two people died and others were injured in the fire, which also
resulted in property damage. The LPG tank cars were leased to FS Logistica S.p.A., a subsidiary of
the Italian state-owned railway, Ferrovie dello Stato S.p.A (the “Italian Railway”). The cause of
the accident is currently under investigation by various Italian authorities. Due to the ongoing
nature of the investigation, many of the facts about the accident have not been made available to
GATX Rail Austria, although certain Italian authorities have asserted that the derailment was a
result of a structural failure in a wheelset on one of the tank cars. GATX Rail Austria and its
subsidiaries have offered their cooperation to the authorities who are investigating the accident.
GATX Rail Austria has received notices of claims from approximately 246 persons and companies who
allegedly suffered damages as a result of the accident. The Company and its subsidiaries maintain
insurance for losses related to property damage and personal injury, and the Company’s insurers are
working cooperatively with the insurer for the Italian Railway to adjust and settle claims. The
Company cannot predict either the outcome of the ongoing investigations by the Italian authorities
or what other legal proceedings, if any, may be initiated against GATX Rail Austria, its
subsidiaries or personnel, and therefore the Company cannot reasonably estimate the loss or range
of loss (including defense costs), if any, that may ultimately be incurred in connection with this
accident. The Company has not established any accruals for potential liability related to this
accident.
Flightlease Litigation
As previously reported in GATX’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2010, this matter has been settled and is now fully concluded.
NOTE 14. Financial Data of Business Segments
The financial data presented below depicts the profitability, financial position and capital
expenditures of each of GATX’s business segments.
GATX leases, operates and manages long-lived, widely used assets in the rail, marine and
industrial equipment markets. GATX also invests in joint ventures that complement existing business
activities. Headquartered in Chicago, Illinois, GATX has three financial reporting segments: Rail,
Specialty and ASC.
Rail is principally engaged in leasing tank and freight railcars and locomotives. Rail
provides railcars primarily pursuant to full-service leases, under which it maintains the railcars,
pays ad valorem taxes and insurance, and provides other ancillary services. Rail also offers net
leases for railcars and most of its locomotives, in which case the lessee is responsible for
maintenance, insurance and taxes.
Specialty provides leasing, asset remarketing and asset management services to the marine and
industrial equipment
markets. Specialty offers operating leases, direct finance leases and loans, and extends its
market reach through joint venture
12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
investments.
ASC owns and operates the largest fleet of U.S. flagged self-unloading vessels on the Great
Lakes, providing waterborne transportation of dry bulk commodities for a range of industrial
customers.
Segment profit is an internal performance measure used by the Chief Executive Officer to
assess the performance of each segment in a given period. Segment profit includes all revenues,
including earnings from affiliates, attributable to the segments as well as ownership and operating
costs that management believes are directly associated with the maintenance or operation of the
revenue earning assets. Operating costs include maintenance costs, marine operating costs and other
operating costs such as litigation, asset impairment charges, provisions for losses, environmental
costs and asset storage costs. Segment profit excludes selling, general and administrative
expenses, income taxes and certain other amounts not allocated to the segments. These amounts are
included in Other.
GATX allocates debt balances and related interest expense to each segment based upon a
pre-determined fixed recourse leverage level expressed as a ratio of recourse debt (including off
balance sheet debt) to equity. The leverage levels for Rail, Specialty and ASC are set at 4:1, 3:1
and 1.5:1, respectively. Management believes that by utilizing this leverage and interest expense
allocation methodology, each operating segment’s financial performance reflects appropriate
risk-adjusted borrowing costs.
The following tables present certain segment data for the three and nine months ended
September 30, 2010 and 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GATX |
|
|
|
Rail |
|
|
Specialty |
|
|
ASC |
|
|
Other |
|
|
Consolidated |
|
Three Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
221.6 |
|
|
$ |
21.0 |
|
|
$ |
65.9 |
|
|
$ |
0.2 |
|
|
$ |
308.7 |
|
Share of affiliates’ earnings |
|
|
(2.1 |
) |
|
|
7.8 |
|
|
|
— |
|
|
|
— |
|
|
|
5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross income |
|
|
219.5 |
|
|
|
28.8 |
|
|
|
65.9 |
|
|
|
0.2 |
|
|
|
314.4 |
|
Ownership costs |
|
|
112.8 |
|
|
|
12.2 |
|
|
|
5.6 |
|
|
|
— |
|
|
|
130.6 |
|
Other costs and expenses |
|
|
74.0 |
|
|
|
3.0 |
|
|
|
47.8 |
|
|
|
(0.3 |
) |
|
|
124.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit |
|
$ |
32.7 |
|
|
$ |
13.6 |
|
|
$ |
12.5 |
|
|
$ |
0.5 |
|
|
|
59.3 |
|
SG&A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28.3 |
|
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio investments and capital additions |
|
$ |
93.0 |
|
|
$ |
19.5 |
|
|
$ |
0.3 |
|
|
$ |
0.6 |
|
|
$ |
113.4 |
|
Selected Balance Sheet Data at September
30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliated companies |
|
$ |
100.4 |
|
|
$ |
361.8 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
462.2 |
|
Identifiable assets |
|
$ |
4,040.6 |
|
|
$ |
718.2 |
|
|
$ |
274.5 |
|
|
$ |
100.2 |
|
|
$ |
5,133.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
222.7 |
|
|
$ |
16.4 |
|
|
$ |
37.3 |
|
|
$ |
0.2 |
|
|
$ |
276.6 |
|
Share of affiliates’ earnings |
|
|
3.6 |
|
|
|
12.0 |
|
|
|
— |
|
|
|
— |
|
|
|
15.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross income |
|
|
226.3 |
|
|
|
28.4 |
|
|
|
37.3 |
|
|
|
0.2 |
|
|
|
292.2 |
|
Ownership costs |
|
|
112.0 |
|
|
|
11.8 |
|
|
|
5.4 |
|
|
|
0.6 |
|
|
|
129.8 |
|
Other costs and expenses |
|
|
66.6 |
|
|
|
3.4 |
|
|
|
30.6 |
|
|
|
(0.2 |
) |
|
|
100.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit |
|
$ |
47.7 |
|
|
$ |
13.2 |
|
|
$ |
1.3 |
|
|
$ |
(0.2 |
) |
|
|
62.0 |
|
SG&A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27.2 |
|
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio investments and capital additions |
|
$ |
105.3 |
|
|
$ |
78.3 |
|
|
$ |
0.3 |
|
|
$ |
2.2 |
|
|
$ |
186.1 |
|
Selected Balance Sheet Data at December
31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliated companies |
|
$ |
120.9 |
|
|
$ |
331.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
452.2 |
|
Identifiable assets |
|
$ |
4,157.7 |
|
|
$ |
672.9 |
|
|
$ |
269.2 |
|
|
$ |
106.6 |
|
|
$ |
5,206.4 |
|
13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail |
|
|
Specialty |
|
|
ASC |
|
|
Other |
|
|
GATX Consolidated |
|
Nine Months Ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
676.1 |
|
|
$ |
54.7 |
|
|
$ |
128.6 |
|
|
$ |
1.1 |
|
|
$ |
860.5 |
|
Share of affiliates’ earnings |
|
|
1.8 |
|
|
|
28.8 |
|
|
|
— |
|
|
|
— |
|
|
|
30.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross income |
|
|
677.9 |
|
|
|
83.5 |
|
|
|
128.6 |
|
|
|
1.1 |
|
|
|
891.1 |
|
Ownership costs |
|
|
340.3 |
|
|
|
35.0 |
|
|
|
13.2 |
|
|
|
2.1 |
|
|
|
390.6 |
|
Other costs and expenses |
|
|
226.2 |
|
|
|
8.3 |
|
|
|
93.4 |
|
|
|
(4.5 |
) |
|
|
323.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit |
|
$ |
111.4 |
|
|
$ |
40.2 |
|
|
$ |
22.0 |
|
|
$ |
3.5 |
|
|
|
177.1 |
|
SG&A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
79.8 |
|
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio investments and capital additions |
|
$ |
181.5 |
|
|
$ |
52.6 |
|
|
$ |
7.3 |
|
|
$ |
3.1 |
|
|
$ |
244.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
685.5 |
|
|
$ |
57.1 |
|
|
$ |
78.8 |
|
|
$ |
1.0 |
|
|
$ |
822.4 |
|
Share of affiliates’ earnings |
|
|
(8.8 |
) |
|
|
31.8 |
|
|
|
— |
|
|
|
— |
|
|
|
23.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross income |
|
|
676.7 |
|
|
|
88.9 |
|
|
|
78.8 |
|
|
|
1.0 |
|
|
|
845.4 |
|
Ownership costs |
|
|
337.6 |
|
|
|
35.1 |
|
|
|
13.1 |
|
|
|
2.8 |
|
|
|
388.6 |
|
Other costs and expenses |
|
|
203.9 |
|
|
|
10.3 |
|
|
|
55.6 |
|
|
|
(1.3 |
) |
|
|
268.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit |
|
$ |
135.2 |
|
|
$ |
43.5 |
|
|
$ |
10.1 |
|
|
$ |
(0.5 |
) |
|
|
188.3 |
|
SG&A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
86.4 |
|
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio investments and capital additions |
|
$ |
277.3 |
|
|
$ |
85.9 |
|
|
$ |
6.9 |
|
|
$ |
6.4 |
|
|
$ |
376.5 |
|
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This document contains statements that may 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 and are subject to the safe harbor provisions of those sections and the Private Securities
Litigation Reform Act of 1995. Some of these statements may be identified by words such as
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” or other words and
terms of similar meaning. Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including those described in
GATX’s Annual Report on Form 10-K for the year ended December 31, 2009, and other filings with the
Securities and Exchange Commission (“SEC”), and that actual results or developments may differ
materially from those in the forward-looking statements. Specific factors that might cause actual
results to differ from expectations include, but are not limited to, general economic, market,
regulatory and political conditions in the rail, marine, industrial and other industries served by
GATX and its customers; lease rates, utilization levels and operating costs in GATX’s primary
operating segments; conditions in the capital markets; changes in GATX’s credit ratings and
financing costs; regulatory rulings that may impact the economic value and operating costs of
assets; costs associated with maintenance initiatives; competitive factors in GATX’s primary
markets including lease pricing and asset availability; changes in loss provision levels within
GATX’s portfolio; impaired asset charges that may result from changing market conditions or
portfolio management decisions implemented by GATX; the opportunity for remarketing income; and the
outcome of pending or threatened litigation. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on these forward-looking statements, which reflect
management’s analysis, judgment, belief or expectation only as of the date hereof. GATX has based
these forward-looking statements on information currently available and disclaims any intention or
obligation to update or revise these forward-looking statements to reflect subsequent events or
circumstances.
Business Overview
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
is based on financial data derived from the financial statements prepared in accordance with
Generally Accepted Accounting Principles (“GAAP”) and certain other financial data that is prepared
using non-GAAP components. For a reconciliation of these non-GAAP components to the most comparable
GAAP components, see Non-GAAP Financial Measures at the end of this Item.
GATX Corporation (“GATX” or the “Company”) leases, operates and manages long-lived, widely
used assets in the rail, marine and industrial equipment markets. GATX also invests in joint
ventures that complement existing business activities. Headquartered in Chicago, Illinois, GATX
has three financial reporting segments: Rail, Specialty and American Steamship Company (“ASC”).
Operating results for the nine months ended September 30, 2010, are not necessarily indicative
of the results that may be achieved for the entire year ending December 31, 2010. For further
information, refer to GATX’s Annual Report on Form 10-K, as filed with the SEC, which contains the
Company’s consolidated financial statements for the year ended December 31, 2009.
15
DISCUSSION OF OPERATING RESULTS
Net income was $21.1 million or $0.45 per diluted share for the third quarter of 2010
compared to net income of $19.6 million or $0.42 per diluted share for the third quarter of 2009.
Results for the third quarter of 2010 include $2.7 million or $0.06 per diluted share of after tax
unrealized losses related to certain interest rate swaps at GATX’s European Rail affiliate AAE
Cargo A.G. (“AAE”) and a $1.9 million or $0.04 per diluted share deferred tax benefit attributable
to a reduction of statutory tax rates in the United Kingdom. Third quarter 2009 results include
$0.2 million of unrealized losses related to the AAE interest rate swaps.
Net income was $61.3 million or $1.31 per diluted share for the first nine months of 2010
compared to net income of $59.9 million or $1.24 per diluted share for the first nine months of
2009. The 2010 results include aggregate after tax income of $1.7 million or $0.04 per diluted share
related to the previously mentioned deferred tax benefit and the favorable resolution of
a litigation matter and tax accrual reversal that occurred in the second quarter, partially offset
by unrealized losses related to certain interest rate swaps at AAE. Results for the first nine
months of 2009 include $18.5 million or $0.38 per diluted share of after tax unrealized losses
related to the previously mentioned interest rate swaps at AAE.
Total investment volume was $244.5 million for the first nine months of 2010 compared to
$376.5 million for the first nine months of 2009.
The following table presents a financial summary of GATX’s operating segments (in millions,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Gross Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail |
|
$ |
219.5 |
|
|
$ |
226.3 |
|
|
$ |
677.9 |
|
|
$ |
676.7 |
|
Specialty |
|
|
28.8 |
|
|
|
28.4 |
|
|
|
83.5 |
|
|
|
88.9 |
|
ASC |
|
|
65.9 |
|
|
|
37.3 |
|
|
|
128.6 |
|
|
|
78.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment gross income |
|
|
314.2 |
|
|
|
292.0 |
|
|
|
890.0 |
|
|
|
844.4 |
|
Other |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
1.1 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Gross Income |
|
$ |
314.4 |
|
|
$ |
292.2 |
|
|
$ |
891.1 |
|
|
$ |
845.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail |
|
$ |
32.7 |
|
|
$ |
47.7 |
|
|
$ |
111.4 |
|
|
$ |
135.2 |
|
Specialty |
|
|
13.6 |
|
|
|
13.2 |
|
|
|
40.2 |
|
|
|
43.5 |
|
ASC |
|
|
12.5 |
|
|
|
1.3 |
|
|
|
22.0 |
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Profit |
|
|
58.8 |
|
|
|
62.2 |
|
|
|
173.6 |
|
|
|
188.8 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
31.0 |
|
|
|
34.8 |
|
|
|
97.3 |
|
|
|
101.9 |
|
Unallocated interest expense, net |
|
|
— |
|
|
|
0.6 |
|
|
|
2.3 |
|
|
|
3.0 |
|
Other income and expense, including eliminations |
|
|
(0.5 |
) |
|
|
(0.4 |
) |
|
|
(5.8 |
) |
|
|
(2.5 |
) |
Income taxes |
|
|
7.2 |
|
|
|
7.6 |
|
|
|
18.5 |
|
|
|
26.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
21.1 |
|
|
$ |
19.6 |
|
|
$ |
61.3 |
|
|
$ |
59.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.45 |
|
|
$ |
0.43 |
|
|
$ |
1.33 |
|
|
$ |
1.28 |
|
Diluted earnings per share |
|
$ |
0.45 |
|
|
$ |
0.42 |
|
|
$ |
1.31 |
|
|
$ |
1.24 |
|
Return on Equity
GATX’s return on equity (“ROE”) is shown for the trailing twelve months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
ROE |
|
|
7.5 |
% |
|
|
7.4 |
% |
16
Segment Operations
Segment profit is an internal performance measure used by the Chief Executive Officer to
assess the performance of each segment in a given period. Segment profit includes all revenues,
including affiliate earnings, attributable to the segments as well as ownership and operating costs
that management believes are directly associated with the maintenance or operation of the revenue
earning assets. Operating costs include maintenance costs, marine operating costs, and other
operating costs such as litigation, asset impairment charges, provisions for losses, environmental
costs and asset storage costs. Segment profit excludes selling, general and administrative
expenses, income taxes and certain other amounts not allocated to the segments. These amounts are
discussed below in Other.
GATX allocates debt balances and related interest expense to each segment based upon a
pre-determined, fixed recourse leverage level expressed as a ratio of recourse debt (including off
balance sheet debt) to equity. The leverage levels for Rail, Specialty and ASC are set at 4:1, 3:1
and 1.5:1, respectively. Management believes that by utilizing this leverage and interest expense
allocation methodology, each operating segment’s financial performance reflects appropriate
risk-adjusted borrowing costs.
Rail
During 2010, the Rail leasing environment has shown a gradual improvement, reflective of
increased railroad traffic and higher demand for railcars; however, lease rates remain under
pressure due to the number of idle cars that remain across the industry. The market impact of the
idle cars is expected to result in leases renewing at rates lower than the expiring rates, which
will continue to have a negative effect on lease income for the remainder of 2010 and 2011.
Lease rates on renewals and assignments during the quarter were generally higher than in previous
quarters in absolute terms, but lower than the expiring rates. In the third quarter, the average
lease renewal rate on cars in the GATX Lease Price Index (LPI) (see definition below) decreased
15.7% from the average expiring lease rate, compared to decreases of 18.6% for the second quarter
and 8.5% for the third quarter of 2009. Utilization increased to 96.8% at the end of the third
quarter, compared to 96.5% at the end of the second quarter and 95.9% at September 30, 2009. Rail
entered 2010 with approximately 17,200 North American cars on leases scheduled to expire during the
year, of which approximately 12,100 expired through the current quarter. Lease terms on renewals
for cars in the LPI averaged 36 months in the current quarter and the second quarter, and 39 months
in the third quarter of 2009. Rail continues to focus on shortening lease term in the current
pricing environment in anticipation of an eventual market recovery. In Europe, Rail’s wholly-owned
tank car fleet has been less volatile due to its concentration in the more stable petroleum market.
Fleet utilization at the end of the current quarter increased to 95.3% compared to 94.4% at the
end of the second quarter and 94.7% at September 30, 2009. AAE, which serves the freight railcar
markets, continued to experience pressure on fleet utilization. During the first
nine months of 2010, Rail’s investment volume was $181.5 million, compared to $277.3 million in
2009.
Components of Rail’s operating results are outlined below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Gross Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease income |
|
$ |
201.4 |
|
|
$ |
208.8 |
|
|
$ |
606.6 |
|
|
$ |
634.3 |
|
Asset remarketing income |
|
|
2.7 |
|
|
|
0.2 |
|
|
|
15.5 |
|
|
|
11.4 |
|
Other income |
|
|
17.5 |
|
|
|
13.7 |
|
|
|
54.0 |
|
|
|
39.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
221.6 |
|
|
|
222.7 |
|
|
|
676.1 |
|
|
|
685.5 |
|
Affiliate earnings |
|
|
(2.1 |
) |
|
|
3.6 |
|
|
|
1.8 |
|
|
|
(8.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219.5 |
|
|
|
226.3 |
|
|
|
677.9 |
|
|
|
676.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
46.1 |
|
|
|
47.4 |
|
|
|
141.2 |
|
|
|
141.0 |
|
Interest expense, net |
|
|
32.0 |
|
|
|
30.6 |
|
|
|
95.5 |
|
|
|
95.7 |
|
Operating lease expense |
|
|
34.7 |
|
|
|
34.0 |
|
|
|
103.6 |
|
|
|
100.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112.8 |
|
|
|
112.0 |
|
|
|
340.3 |
|
|
|
337.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance expense |
|
|
61.6 |
|
|
|
61.0 |
|
|
|
190.5 |
|
|
|
185.1 |
|
Other costs |
|
|
12.4 |
|
|
|
5.6 |
|
|
|
35.7 |
|
|
|
18.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74.0 |
|
|
|
66.6 |
|
|
|
226.2 |
|
|
|
203.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit |
|
$ |
32.7 |
|
|
$ |
47.7 |
|
|
$ |
111.4 |
|
|
$ |
135.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
GATX Lease Price Index
The GATX Lease Price Index is an internally generated business indicator that measures general
lease rate pricing on renewals within Rail’s North American fleet. The index reflects the weighted
average lease rate for a select group of railcar types that Rail believes to be representative of
its overall North American fleet. The LPI measures the percentage change between the weighted
average renewal lease rate and the weighted average expiring lease rate. Average renewal term
reflects the weighted average renewal lease term in months.
Rail’s Fleet Data
The following table summarizes certain fleet data for Rail’s North American railcars for the
quarters indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
December 31 |
|
March 31 |
|
June 30 |
|
September 30 |
|
|
2009 |
|
2009 |
|
2010 |
|
2010 |
|
2010 |
Beginning balance |
|
|
111,154 |
|
|
|
111,206 |
|
|
|
110,870 |
|
|
|
108,918 |
|
|
|
108,626 |
|
Cars added |
|
|
1,478 |
|
|
|
774 |
|
|
|
346 |
|
|
|
434 |
|
|
|
1,189 |
|
Cars scrapped |
|
|
(1,302 |
) |
|
|
(1,108 |
) |
|
|
(1,026 |
) |
|
|
(726 |
) |
|
|
(917 |
) |
Cars sold |
|
|
(124 |
) |
|
|
(2 |
) |
|
|
(1,272 |
) |
|
|
— |
|
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
111,206 |
|
|
|
110,870 |
|
|
|
108,918 |
|
|
|
108,626 |
|
|
|
108,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization rate at quarter end |
|
|
95.9 |
% |
|
|
95.9 |
% |
|
|
96.0 |
% |
|
|
96.5 |
% |
|
|
96.8 |
% |
Average active railcars |
|
|
106,136 |
|
|
|
106,310 |
|
|
|
105,461 |
|
|
|
104,530 |
|
|
|
104,611 |
|
Average active railcars — year to date |
|
|
107,867 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
104,906 |
|
18
The following table summarizes certain fleet data for Rail’s European railcars for the quarters
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
December 31 |
|
March 31 |
|
June 30 |
|
September 30 |
|
|
2009 |
|
2009 |
|
2010 |
|
2010 |
|
2010 |
Beginning balance |
|
|
20,000 |
|
|
|
20,005 |
|
|
|
20,033 |
|
|
|
20,321 |
|
|
|
20,302 |
|
Cars added |
|
|
91 |
|
|
|
100 |
|
|
|
288 |
|
|
|
15 |
|
|
|
61 |
|
Cars scrapped or sold |
|
|
(86 |
) |
|
|
(72 |
) |
|
|
— |
|
|
|
(34 |
) |
|
|
(137 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
20,005 |
|
|
|
20,033 |
|
|
|
20,321 |
|
|
|
20,302 |
|
|
|
20,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization rate at quarter end |
|
|
94.7 |
% |
|
|
94.7 |
% |
|
|
94.4 |
% |
|
|
94.4 |
% |
|
|
95.3 |
% |
Average active railcars |
|
|
19,045 |
|
|
|
18,987 |
|
|
|
19,117 |
|
|
|
19,198 |
|
|
|
19,223 |
|
Average active railcars — year to date |
|
|
19,104 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
19,180 |
|
The following table summarizes certain fleet data for Rail’s North American locomotives for
the quarters indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
December 30 |
|
March 31 |
|
June 30 |
|
September 30 |
|
|
2009 |
|
2009 |
|
2010 |
|
2010 |
|
2010 |
Beginning balance |
|
|
536 |
|
|
|
523 |
|
|
|
529 |
|
|
|
535 |
|
|
|
536 |
|
Locomotives added |
|
|
— |
|
|
|
6 |
|
|
|
6 |
|
|
|
1 |
|
|
|
6 |
|
Locomotives scrapped or sold |
|
|
(13 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
523 |
|
|
|
529 |
|
|
|
535 |
|
|
|
536 |
|
|
|
542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization rate at quarter end |
|
|
90.1 |
% |
|
|
89.8 |
% |
|
|
90.3 |
% |
|
|
98.1 |
% |
|
|
98.7 |
% |
Average active locomotives |
|
|
471 |
|
|
|
472 |
|
|
|
479 |
|
|
|
517 |
|
|
|
531 |
|
Average active locomotives — year to date |
|
|
485 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
510 |
|
Rail’s Lease Income
Components of Rail’s lease income are outlined below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
North American railcars |
|
$ |
157.6 |
|
|
$ |
164.2 |
|
|
$ |
476.7 |
|
|
$ |
506.2 |
|
European railcars |
|
|
34.7 |
|
|
|
36.6 |
|
|
|
104.6 |
|
|
|
104.0 |
|
Locomotives |
|
|
9.1 |
|
|
|
8.0 |
|
|
|
25.3 |
|
|
|
24.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
201.4 |
|
|
$ |
208.8 |
|
|
$ |
606.6 |
|
|
$ |
634.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Comparison of the First Nine Months of 2010 to the First Nine Months of 2009
Segment Profit
Rail’s segment profit for the first nine months of 2010 and 2009 reflects unrealized losses of
$8.9 million and $22.0 million, respectively, representing the change in the fair value of certain
interest rate swaps at AAE. Excluding the unrealized losses, Rail’s segment profit decreased $36.9
million, primarily due to lower North American lease income, higher maintenance costs in Europe and
higher asset impairment charges, partially offset by higher asset remarketing income and scrapping
gains.
Gross Income
Lease income in North America decreased $29.5 million, primarily due to an average of
approximately 3,000 fewer cars on lease resulting from lease end returns and car sales. In Europe,
a $0.6 million increase in lease income was driven primarily by higher rates on new railcar
placements, largely offset by the foreign exchange effects of a stronger U.S. Dollar. Asset
remarketing income increased $4.1 million due to increased railcar sales in the current year.
Other income was $14.2 million higher, primarily due to higher scrapping gains, income from an
end-of-lease settlement and higher repair revenue, which was largely offset in maintenance expense.
Share of affiliates’ earnings was $10.6 million higher, primarily due to a $13.1 million decrease
in unrealized losses on interest rate swaps at AAE. Excluding the unrealized losses, share of
affiliates’ earnings was $2.5 million lower, primarily due to lower operating earnings at AAE,
partially offset by an affiliate asset remarketing gain.
AAE holds multiple derivative instruments to hedge interest rate risk associated with
forecasted floating rate debt issuances. These instruments do not qualify for hedge accounting and
as a result, changes in their fair values are recognized currently in income. The unrealized
losses recognized were primarily driven by declines in benchmark interest rates. AAE’s earnings
may be impacted by future unrealized gains or losses associated with these instruments.
Ownership Costs
Ownership costs increased $2.7 million resulting from investment volume. The mix of ownership
costs compared to 2009 was impacted by a $78.9 million sale-leaseback of 947 railcars in 2010 and a
$45.7 million sale-leaseback of 597 railcars in 2009.
Other Costs and Expenses
In North America, maintenance costs were $3.1 million lower, primarily due to lower railroad
repair volumes, largely offset by higher costs and higher customer liability repairs. In Europe,
maintenance costs were $8.6 million higher, primarily due to higher repair volumes,
including costs associated with a wheelset replacement program and the absence of a manufacturer’s
warranty reimbursement received in the prior year.
Other costs in 2010
were $16.9 million higher than the prior year. In 2009, a net $2.5 million benefit was recorded upon the restructuring of a lease contract with a
customer that declared bankruptcy and a $2.8 million insurance recovery was received related to a
GATX repair facility in Europe. In the current year, higher storage fees and asset impairment
charges and net remeasurement losses on non-functional currency denominated assets and liabilities
also contributed to the increase. Asset impairment charges in the current year primarily consisted
of a $4.8 million charge in North America resulting from an American Association of Railroads
industry-wide regulatory mandate that resulted in a significant decrease to the expected economic
life of 358 GATX aluminum hopper railcars. In the prior year, an asset impairment charge in North
America of $4.4 million was offset by the reversal of a $6.9 million provision for losses, each
attributable to the lease restructuring noted above.
Comparison of the Third Quarter 2010 to the Third Quarter 2009
Segment Profit
Rail’s segment profit for the third quarter of 2010 and 2009 reflects unrealized losses of
$3.0 million and $0.2 million, respectively, representing the change in the fair value of certain
interest rate swaps at AAE. Excluding the unrealized losses, Rail’s segment profit was $12.2
million lower, primarily due to lower North American lease income, lower AAE operating results, and higher
other costs and expenses, partially offset by higher asset remarketing and scrapping income.
20
Gross Income
Lease income in North America decreased $6.6 million, primarily due to an average of 1,525
fewer cars on lease. Lease income in Europe was $1.9 million lower, primarily due to the foreign
exchange effects of a stronger U.S. Dollar, partially offset by higher income from an average of
178 more cars on lease. Asset remarketing income increased $2.5 million due to increased railcar
sales. Other income was $3.8 million higher, primarily due to higher equalization revenue, which
is offset in other operating costs, and higher scrapping gains. Share of affiliates’ earnings was
$5.7 million lower than the prior year period. The current period includes a $3.0 million
unrealized loss on interest rate swaps at AAE compared to a $0.2 million unrealized loss in 2009.
Excluding the losses from both periods, share of affiliates’ earnings decreased $2.9 million due to
lower operating earnings at AAE.
Ownership Costs
Ownership costs were comparable to the prior year. The mix of ownership costs compared to
2009 was impacted by a $78.9 million sale-leaseback of 947 railcars in 2010 and a $45.7 million
sale-leaseback of 597 railcars in 2009.
Other Costs and Expenses
In North America, maintenance costs decreased $2.4 million, largely due to lower railroad
repairs and lower program and fleet issues. In Europe,
maintenance costs were $3.0 million higher, primarily due to higher revision volumes and higher
costs, including costs associated with a wheelset replacement program, partially offset by the
foreign exchange effects of a stronger U.S. Dollar.
Other costs were $6.8 million higher in the current period, primarily due to higher
equalization expense and the absence of a prior year $2.8 million insurance recovery related to a
GATX repair facility in Europe.
Rail Regulatory Update
In 2009, the U.S. Pipeline and Hazardous Materials Safety Administration, in coordination with
the Federal Railroad Administration (“FRA”) issued final interim rules (the “FRA Interim Rules”)
that, among other things, established new interim design standards for pressurized tank cars that
transport toxic-by-inhalation hazardous materials (“TIH cars”). The designation “final interim”
indicates that the FRA intends to continue to research enhanced design standards for TIH cars and
will issue additional rulemaking in the future that will prescribe final design requirements. Under
the FRA Interim Rules, TIH cars manufactured after the effective date of the rules must be built to
a higher pressure class rating relative to U.S. Department of Transportation specifications for
tank cars used to transport other commodities. Unlike the original version of the rules proposed in
2008, the FRA Interim Rules as adopted do not include a retirement schedule for TIH cars
manufactured prior to effective date of the rules. However, the FRA Interim Rules require that
existing TIH cars receive appropriate certification from the Association of American Railroads
(“AAR”) in order to remain in TIH service. All GATX tank cars currently in TIH service have
received this certification. As of September 30, 2010, only 1,668 TIH cars remained in service in
GATX’s fleet (approximately 1.5% of its North American fleet) and, based upon management’s review
to date, GATX does not expect that the FRA Interim Rules will have a material impact on the
Company’s financial position or results of operations.
Specialty
Specialty’s total asset base, including off balance sheet assets, was $721.7 million at
September 30, 2010, compared to $676.9 million at December 31, 2009, and $677.0 million at
September 30, 2009. Investment volume was $52.6 million in the first nine months of 2010 compared
to $85.9 million in the prior year period. Investments in 2010 primarily consisted of $27.3 million
of equipment and $24.9 million in affiliates. Specialty continues to evaluate investment
opportunities in a disciplined manner, focusing on targeted asset types, asset cost and appropriate
risk adjusted returns. Marine affiliate market conditions remain under pressure due to decreased
demand for transport services as well as a greater number of vessels serving these markets.
Specialty’s aircraft engine leasing affiliate continues to produce positive operating results.
21
Components of Specialty’s operating results are outlined below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Gross Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease income |
|
$ |
13.6 |
|
|
$ |
13.2 |
|
|
$ |
41.3 |
|
|
$ |
41.5 |
|
Asset remarketing income |
|
|
7.4 |
|
|
|
2.9 |
|
|
|
12.9 |
|
|
|
13.8 |
|
Other income |
|
|
— |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
21.0 |
|
|
|
16.4 |
|
|
|
54.7 |
|
|
|
57.1 |
|
Affiliate earnings |
|
|
7.8 |
|
|
|
12.0 |
|
|
|
28.8 |
|
|
|
31.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.8 |
|
|
|
28.4 |
|
|
|
83.5 |
|
|
|
88.9 |
|
Ownership Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
4.6 |
|
|
|
4.7 |
|
|
|
13.0 |
|
|
|
14.5 |
|
Interest expense, net |
|
|
7.3 |
|
|
|
6.9 |
|
|
|
21.0 |
|
|
|
19.6 |
|
Operating lease expense |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.2 |
|
|
|
11.8 |
|
|
|
35.0 |
|
|
|
35.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Costs and Expenses |
|
|
3.0 |
|
|
|
3.4 |
|
|
|
8.3 |
|
|
|
10.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit |
|
$ |
13.6 |
|
|
$ |
13.2 |
|
|
$ |
40.2 |
|
|
$ |
43.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty’s Portfolio Data
The following table summarizes information on the owned and managed Specialty portfolio (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
December 31 |
|
March 31 |
|
June 30 |
|
September 30 |
|
|
2009 |
|
2009 |
|
2010 |
|
2010 |
|
2010 |
Net book value of owned assets (a) |
|
|
677.0 |
|
|
|
676.9 |
|
|
|
694.6 |
|
|
|
699.4 |
|
|
|
721.7 |
|
Net book value of managed
portfolio |
|
|
262.3 |
|
|
|
251.9 |
|
|
|
247.3 |
|
|
|
228.1 |
|
|
|
215.1 |
|
|
|
|
(a) |
|
Includes off balance sheet assets |
Comparison of the First Nine Months of 2010 to the First Nine Months of 2009
Segment Profit
Specialty’s segment profit for the first nine months of 2010 was $3.3 million lower than the
prior year, primarily due to lower affiliate earnings, partially offset by lower other costs and
expenses.
Gross Income
Lease income was comparable to the prior year as modest differences in income resulted
primarily from the timing of new investments and asset dispositions. Asset remarketing income was
also comparable to the prior year. Other income decreased $1.3 million, primarily due to lower fee
income. Share of affiliates’ earnings decreased $3.0 million, primarily due to lower marine
affiliate operating earnings which reflect lower charter rates and the impact of several out of service vessels
undergoing repair work.
Ownership Costs
Ownership costs were comparable to the prior year.
Other Costs and Expenses
Other costs and expenses decreased $2.0 million, primarily due to lower provisions for losses
and asset impairment charges.
22
Comparison of the Third Quarter of 2010 to the Third Quarter of 2009
Segment Profit
Specialty’s segment profit for the third quarter of 2010 approximated the prior year, as
higher asset remarketing income was largely offset by lower affiliate earnings.
Gross Income
Lease income was $0.4 million higher, primarily due to income from new investments. Asset
remarketing income was $4.5 million higher, primarily due to a gain on a sales type lease recorded
in the current year. Share of affiliates’ earnings decreased $4.2 million, primarily due to lower
affiliate asset remarketing gains.
Ownership Costs
Ownership costs were comparable to the prior year.
Other Costs and Expenses
Other costs and expenses decreased $0.4 million, primarily due to the absence of asset
impairment charges taken in the prior year.
ASC
The Great Lakes dry bulk transportation market entered 2010 with significant uncertainty after
experiencing record lows in 2009 in terms of volume of commodities transported, driven by the
capacity reductions in the steel industry and the resultant decline in demand for iron ore. An
increase in economic activity in 2010 led to a partial recovery in steel production and a
significant increase in demand for iron ore. ASC is operating 13 vessels in 2010 compared to 8
vessels in the prior year. During the first nine months of 2010, ASC carried 19.5 million net tons
of freight compared to 12.6 million net tons carried in the prior year, a reflection of the
increase in demand for iron ore noted above.
Components of ASC’s operating results are outlined below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Gross Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine operating revenues |
|
$ |
64.8 |
|
|
$ |
36.3 |
|
|
$ |
125.5 |
|
|
$ |
75.7 |
|
Lease income |
|
|
1.1 |
|
|
|
1.0 |
|
|
|
3.1 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65.9 |
|
|
|
37.3 |
|
|
|
128.6 |
|
|
|
78.8 |
|
Ownership Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
3.6 |
|
|
|
3.2 |
|
|
|
6.9 |
|
|
|
6.3 |
|
Interest expense, net |
|
|
2.0 |
|
|
|
2.2 |
|
|
|
6.3 |
|
|
|
6.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.6 |
|
|
|
5.4 |
|
|
|
13.2 |
|
|
|
13.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance expense |
|
|
4.1 |
|
|
|
4.8 |
|
|
|
8.2 |
|
|
|
10.2 |
|
Marine operating expense |
|
|
43.7 |
|
|
|
25.8 |
|
|
|
85.2 |
|
|
|
51.0 |
|
Other costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47.8 |
|
|
|
30.6 |
|
|
|
93.4 |
|
|
|
55.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit |
|
$ |
12.5 |
|
|
$ |
1.3 |
|
|
$ |
22.0 |
|
|
$ |
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Comparison of the First Nine Months of 2010 to the First Nine Months of 2009
Segment Profit
ASC’s segment profit for the first nine months of 2010 was $11.9 million higher than the prior
year. The prior year results included the receipt of a $5.6 million litigation settlement.
Excluding the impact of the litigation settlement, the increase from the prior year was primarily
due to significantly higher freight volume and lower maintenance expense.
Gross Income
Gross income increased $49.8 million, primarily due to significantly higher iron ore freight
volume, higher freight rates and higher fuel surcharges (which are offset in operating expenses).
Ownership Costs
Ownership costs between the two periods were comparable.
Other Costs and Expenses
Maintenance costs decreased $2.0 million due to lower required vessel maintenance and repairs
in 2010. Marine operating expenses increased $34.2 million, primarily due to increased shipping
activity in 2010 and increased costs for fuel. Other costs in 2009 reflect the receipt of the
litigation settlement.
Comparison of the Third Quarter of 2010 to the Third Quarter of 2009
Segment Profit
ASC’s segment profit for the third quarter of 2010 was $11.2 million higher than the prior
year, primarily due to significantly higher freight volume and lower maintenance expense.
Gross Income
Gross income increased $28.6 million, primarily due to significantly higher iron ore freight
volume, higher freight rates and higher fuel surcharges (which are offset in operating expenses).
Ownership Costs
Ownership costs between the two periods were comparable.
Other Costs and Expenses
Maintenance costs decreased $0.7 million due to lower required vessel maintenance and repairs
in 2010. Marine operating expenses increased $17.9 million, primarily due to increased shipping
activity in 2010 and increased costs for fuel.
24
Other
Other is comprised of selling, general and administrative expenses (“SG&A”), unallocated
interest expense and miscellaneous income and expense not directly associated with the reporting
segments and eliminations.
Components of Other are outlined below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30 |
|
September 30 |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Selling, general and administrative expenses |
|
$ |
31.0 |
|
|
$ |
34.8 |
|
|
$ |
97.3 |
|
|
$ |
101.9 |
|
Unallocated interest expense, net |
|
|
— |
|
|
|
0.6 |
|
|
|
2.3 |
|
|
|
3.0 |
|
Other income and expense, including eliminations |
|
|
(0.5 |
) |
|
|
(0.4 |
) |
|
|
(5.8 |
) |
|
|
(2.5 |
) |
Income taxes |
|
|
7.2 |
|
|
|
7.6 |
|
|
|
18.5 |
|
|
|
26.5 |
|
SG&A for the first nine months of 2010 was $4.6 million lower than the prior year and
$3.8 million lower for the third quarter of 2010, primarily due to reduced spending across a number
of functional areas. Unallocated interest expense (the difference between external interest
expense and amounts allocated to the reporting segments in accordance with assigned leverage
targets) for the first nine months of 2010 was $0.7 million lower than the prior year period, and
for the third quarter of 2010 was $0.6 million lower than the prior year period. These decreases
were primarily due to the timing of debt issuances and investment spending in both years. Other
income and expense for the first nine months of 2010 primarily reflects a $6.5 million benefit from
the resolution of a litigation matter, partially offset by a $2.0 million addition to an
environmental reserve related to a sold facility. Other income and expense for the first nine
months of 2009 primarily consisted of the reversal of a non-income tax accrual.
Income Taxes
GATX’s effective tax rate was 23% for the nine months ended September 30, 2010, compared to
31% for the nine months ended September 30, 2009. In the current year, GATX’s liability for
unrecognized tax benefits was reduced by $3.7 million in connection with the close of various
federal and foreign tax audits. Additionally, a $1.9 million deferred tax benefit was recognized
in connection with a reduction in the statutory tax rates in the United Kingdom. In 2009, a change
in the functional currency tax election of a foreign wholly-owned subsidiary resulted in the
recognition of a $2.4 million deferred tax benefit. Excluding the effect of the tax benefits from
each year, GATX’s effective tax rate for the first nine months of 2010 and 2009 was 30% and 33%,
respectively. The difference between the 2010 and 2009 effective tax rates was driven by
variability in the mix of domestic and foreign sourced pre-tax earnings, which is taxed at
different rates.
Cash Flow and Liquidity
GATX generates a significant amount of cash from its operating activities and proceeds from
its investment portfolio, which is used to service debt, pay dividends, and fund portfolio
investments and capital additions. Cash flows from operations and portfolio proceeds are impacted
by changes in working capital and the timing of asset dispositions. As a result, cash flow
components may vary materially from quarter to quarter and year to year. As of September 30, 2010,
GATX had unrestricted cash balances of $23.6 million.
Net cash provided by operating activities for the first nine months of 2010 was $150.6
million, an increase of $18.6 million from the prior year. The increase was primarily driven by
lower U.S. pension plan contributions and other changes in working capital, partially offset by
lower lease income. Current year U.S. pension plan contributions were $14.4 million compared to
$38.3 million in the prior year. Additionally, in the first quarter of 2010, GATX discovered a
clerical error in the preparation of its Consolidated Statement of Cash Flows for the fourth
quarter of 2009, resulting in a $13.1 million overstatement of net cash provided by operating
activities for the year ending December 31, 2009. Management has determined that the effect of this
error is immaterial to prior periods and adjusted its Consolidated Statement of Cash Flows in 2010
to correct this error.
Portfolio investments and capital additions for the first nine months of 2010 totaled $244.5
million, a decrease of $132.0 million from the prior year. Rail and Specialty investments in 2010
were $181.5 million and $52.6 million, respectively, compared to $277.3 million and $85.9 million,
respectively, in 2009. Specialty investments included scheduled repayments of loans to affiliates
of $6.8 million in 2010 and $54.3 million in 2009.
25
Portfolio proceeds for the first nine months of 2010 of $55.4 million were comparable to prior
year. Proceeds from sales of other assets were $21.9 million for the first nine months of 2010 and
$17.0 million for the first nine months of 2009 and primarily consisted of cash received from the
scrapping of railcars. Other proceeds for the first nine months of 2009 consisted of $33.1 million
received from the partial liquidation of a money market fund investment.
GATX funds its investments and meets its debt, lease and dividend obligations through
available cash balances, cash generated from operating activities, portfolio proceeds, sales of
other assets, commercial paper issuances, committed revolving credit facilities and the issuance of
secured and unsecured debt. Cash from operations and commercial paper issuances are the primary
sources of cash used to fund daily operations. GATX utilizes both domestic and international
capital markets and banks for its debt financing needs.
Proceeds from the issuance of debt for the first nine months of 2010 were $259.1 million (net
of hedges and debt issuance costs). Debt repayments of $298.0 million for the first nine months of
2010 primarily consisted of debt maturities and the repayment of convertible debt principal.
In the first nine months of 2009, 2.8 million shares were repurchased for $55.1 million.
These purchases were made under the Company’s $200 million share repurchase program and as of
September 30, 2010, $68.6 million of authorization remains. There were no stock repurchases in the
first nine months of 2010.
GATX has a $550 million unsecured revolving credit facility that matures in May 2012. As of
September 30, 2010, availability under the facility was $525.5 million, with $15.0 million of
commercial paper outstanding and $9.5 million of letters of credit issued, both of which are backed
by the facility.
The $550 million revolving credit facility contains various restrictive covenants, including
requirements to maintain a fixed charge coverage ratio and an asset coverage test. The indentures
for GATX’s public debt contain limitation on liens provisions that limit the amount of secured
indebtedness that GATX may incur, subject to several exceptions, including those permitting an
unlimited amount of purchase money indebtedness and nonrecourse indebtedness. The loan agreements
for certain of GATX’s wholly-owned European Rail subsidiaries (collectively, “GRE”) also contain
restrictive covenants, including leverage and cash flow covenants specific to those subsidiaries,
restrictions on making loans and limitations on the ability of these subsidiaries to repay loans to
certain related parties (including GATX) and to pay dividends to GATX. The covenants relating to
loans and dividends effectively limit the ability of GRE to transfer funds to GATX. GATX does not
anticipate any covenant violations nor does it anticipate that any of these covenants will restrict
its operations or its ability to procure additional financing. As of September 30, 2010, GATX was
in compliance with all covenants and conditions of its credit agreements.
The availability of GATX’s funding options may be affected by certain factors, including the
global capital market environment and outlook as well as GATX’s financial performance. GATX’s
access to capital markets at competitive rates is dependent on its credit rating and rating
outlook, as determined by rating agencies such as Standard & Poor’s (“S&P”) and Moody’s Investor
Service (“Moody’s”). In August 2010, S&P lowered its credit rating on GATX’s long-term unsecured
debt from BBB+ to BBB and revised GATX’s rating outlook from negative to stable. In September
2010, Moody’s maintained GATX’s credit rating at Baa1 and revised GATX’s rating outlook from
negative to stable. GATX’s short-term unsecured debt ratings of A-2 by S&P and P-2 by Moody’s are
unchanged.
Critical Accounting Policies
There have been no changes to GATX’s critical accounting policies during the nine months
ending September 30, 2010; refer to GATX’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2009, for a summary of GATX’s policies.
Non-GAAP Financial Measures
This report includes certain financial performance measures computed using non-GAAP components
as defined by the SEC. As required under SEC rules, GATX has provided a reconciliation of these
non-GAAP components to the most directly comparable GAAP components. Financial performance
measures disclosed in this report are intended to provide additional insight into the historical
operating results and financial position of the Company. Management uses these performance
measures to assist in analyzing GATX’s financial performance from period to period and to establish
criteria for compensation decisions. These measures are not in accordance with, or a substitute
for, GAAP and may be different from, or
inconsistent with, non-GAAP financial measures used by other companies.
26
Glossary of Key Terms
|
• |
|
Non-GAAP Financial Measures — Numerical or percentage based measures of a company’s
historical performance, financial position or liquidity calculated using a component
different from that presented in the financial statements as prepared in accordance with
GAAP. |
|
|
• |
|
Off Balance Sheet Assets — Assets, primarily railcars, which are financed with operating
leases and therefore not recorded on the balance sheet. GATX estimates the off balance sheet
asset amount by calculating the present value of committed future operating lease payments
using the interest rate implicit in each lease. |
|
|
• |
|
On Balance Sheet Assets — Total assets as reported on the balance sheet. |
|
|
• |
|
Total On and Off Balance Sheet Assets — Management believes that the total of on and off
balance sheet assets provides investors with a more meaningful representation of the assets
deployed in GATX’s businesses. |
Reconciliation of non-GAAP financial information (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
|
December 31 |
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
Consolidated On Balance Sheet Assets |
|
$ |
5,258.0 |
|
|
$ |
5,206.4 |
|
|
$ |
5,307.0 |
|
|
$ |
5,083.0 |
|
|
$ |
5,133.5 |
|
Off Balance Sheet Assets |
|
|
1,008.4 |
|
|
|
1,016.1 |
|
|
|
942.9 |
|
|
|
944.1 |
|
|
|
982.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total On and Off Balance Sheet Assets |
|
$ |
6,266.4 |
|
|
$ |
6,222.5 |
|
|
$ |
6,249.9 |
|
|
$ |
6,027.1 |
|
|
$ |
6,116.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity |
|
$ |
1,112.2 |
|
|
$ |
1,102.6 |
|
|
$ |
1,096.2 |
|
|
$ |
1,044.9 |
|
|
$ |
1,098.6 |
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Since December 31, 2009, there have been no material changes in GATX’s interest rate and
foreign currency exposures or types of derivative instruments used to hedge these exposures. For a
discussion of the Company’s exposure to market risk, refer to Part II: Item 7A, Quantitative and
Qualitative Disclosure about Market Risk of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2009.
Item 4. Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange
Act”)). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of the period covered by this quarterly report, the Company’s
disclosure controls and procedures were effective.
No change in the Company’s internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended September 30, 2010, that
materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
27
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Information concerning litigation and other contingencies is described in Note 13 to the
consolidated financial statements and is incorporated herein by reference.
Item 1A. Risk Factors
Since December 31, 2009, there have been no material changes in GATX’s risk factors. For
a discussion of GATX’s risk factors, refer to Part 1: Item 1A, Risk Factors of the Company’s
Annual Report on Form 10-K for the year ended December 31, 2009.
28
Item 6. Exhibits
Exhibits:
Reference is made to the exhibit index which is included herewith and is
incorporated by reference hereto.
29
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/ Robert C. Lyons
|
|
|
Robert C. Lyons |
|
|
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer) |
|
|
Date:
October 27, 2010
30
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
|
|
|
Filed with this Report: |
|
|
|
31A.
|
|
Certification Pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)
(CEO Certification). |
|
|
|
31B.
|
|
Certification Pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)
(CFO Certification). |
|
|
|
32.
|
|
Certification Pursuant to 18 U.S.C. Section 1350 (CEO and CFO Certification). |
|
|
|
101.
|
|
The following materials from GATX Corporation’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2010, formatted in XBRL (eXtensible
Business Reporting Language): (i) Consolidated Balance Sheets at September
30, 2010 and December 31, 2009, (ii) Consolidated Statements of Income for
the three and nine months ended September 30, 2010 and 2009, (iii)
Consolidated Statements of Cash Flows for the nine months ended September
30, 2010 and 2009, and (iv) Notes to the Consolidated Financial Statements,
tagged as block of text.* |
|
|
|
* |
|
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on
Exhibit 101 hereto are deemed not filed or part of a registration statement
or prospectus for purposes of Sections 11 or 12 of the Securities Act of
1933, as amended, are deemed not filed for purposes of Section 18 of the
Securities and Exchange Act of 1934, as amended, and otherwise are not
subject to liability under those sections. |
31