Attached files
file | filename |
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EX-10.2 - EX-10.2 - GATX CORP | c63344exv10w2.htm |
EX-10.1.A - EX-10.1.A - GATX CORP | c63344exv10w1wa.htm |
EX-32 - EX-32 - GATX CORP | c63344exv32.htm |
EX-31.B - EX-31.B - GATX CORP | c63344exv31wb.htm |
EXCEL - IDEA: XBRL DOCUMENT - GATX CORP | Financial_Report.xls |
EX-10.1 - EX-10.1 - GATX CORP | c63344exv10w1.htm |
EX-31.A - EX-31.A - GATX CORP | c63344exv31wa.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
o | 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)
New York | 36-1124040 | |
(State of incorporation) | (I.R.S. Employer Identification No.) |
222 West Adams Street
Chicago, Illinois 60606-5314
(Address of principal executive offices, including zip code)
Chicago, Illinois 60606-5314
(Address of principal executive offices, including zip code)
(312) 621-6200
(Registrants telephone number, including area code)
(Registrants 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 (as defined in Rule 12b-2 of the Exchange
Act).
þ Large accelerated filer | o Accelerated filer | o Non-accelerated filer | o Smaller reporting company | |||
(Do not check if a smaller reporting company) |
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 March 31, 2011, 46.4 million common shares were outstanding.
GATX CORPORATION
FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED March 31, 2011
FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED March 31, 2011
INDEX
Item No. | Page No. | |||||||
1 | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
13 | ||||||||
13 | ||||||||
14 | ||||||||
15 | ||||||||
22 | ||||||||
24 | ||||||||
24 | ||||||||
25 | ||||||||
25 | ||||||||
26 | ||||||||
27 | ||||||||
27 | ||||||||
28 | ||||||||
29 | ||||||||
30 | ||||||||
EX-10.1 | ||||||||
EX-10.1.A | ||||||||
EX-10.2 | ||||||||
EX-31.A | ||||||||
EX-31.B | ||||||||
EX-32 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($ in millions, except share data)
March 31 | December 31 | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Cash and Cash Equivalents |
$ | 53.9 | $ | 78.5 | ||||
Restricted Cash |
54.7 | 56.6 | ||||||
Receivables |
||||||||
Rent and other receivables |
63.6 | 71.1 | ||||||
Finance leases |
333.8 | 347.7 | ||||||
Less: allowance for possible losses |
(11.6 | ) | (11.6 | ) | ||||
385.8 | 407.2 | |||||||
Operating Assets and Facilities |
||||||||
Rail (includes $123.6 and $123.7 relating to a consolidated VIE at March 31, 2011 and
December 31, 2010, respectively) |
5,593.4 | 5,513.6 | ||||||
Specialty |
288.8 | 280.8 | ||||||
ASC |
394.2 | 389.1 | ||||||
Less: allowance for depreciation (includes $15.0 and $13.6 relating to a consolidated VIE at
March 31, 2011 and December 31, 2010, respectively) |
(2,086.7 | ) | (2,049.7 | ) | ||||
4,189.7 | 4,133.8 | |||||||
Investments in Affiliated Companies |
524.6 | 486.1 | ||||||
Goodwill |
96.7 | 92.7 | ||||||
Other Assets |
193.3 | 187.5 | ||||||
Total Assets |
$ | 5,498.7 | $ | 5,442.4 | ||||
Liabilities and Shareholders Equity |
||||||||
Accounts Payable and Accrued Expenses |
$ | 126.4 | $ | 114.6 | ||||
Debt |
||||||||
Commercial paper and borrowings under bank credit facilities |
175.8 | 115.6 | ||||||
Recourse |
2,810.6 | 2,801.8 | ||||||
Nonrecourse (includes $53.5 and $56.2 relating to a consolidated VIE at March 31, 2011 and
December 31, 2010, respectively) |
193.1 | 217.2 | ||||||
Capital lease obligations |
40.6 | 41.9 | ||||||
3,220.1 | 3,176.5 | |||||||
Deferred Income Taxes |
759.0 | 750.6 | ||||||
Other Liabilities |
239.5 | 287.0 | ||||||
Total Liabilities |
4,345.0 | 4,328.7 | ||||||
Shareholders Equity |
||||||||
Preferred stock ($1.00 par value, 5,000,000 shares authorized, 16,644 and 16,694 shares of
Series A and B $2.50 Cumulative Convertible Preferred Stock issued and outstanding as of
March 31, 2011 and December 31, 2010, respectively, aggregate liquidation preference of
$1.0) |
* | * | ||||||
Common stock ($0.625 par value, 120,000,000 authorized, 65,513,444 and 65,482,950 shares
issued and 46,390,924 and 46,360,430 shares outstanding as of March 31, 2011 and December
31, 2010, respectively) |
40.9 | 40.9 | ||||||
Additional paid in capital |
630.0 | 626.2 | ||||||
Retained earnings |
1,122.7 | 1,116.9 | ||||||
Accumulated other comprehensive loss |
(79.6 | ) | (110.0 | ) | ||||
Treasury stock at cost (19,122,520 shares at March 31, 2011 and December 31, 2010) |
(560.3 | ) | (560.3 | ) | ||||
Total Shareholders Equity |
1,153.7 | 1,113.7 | ||||||
Total Liabilities and Shareholders Equity |
$ | 5,498.7 | $ | 5,442.4 | ||||
* | Less than $0.1 million. |
The accompanying notes are an integral part of these consolidated financial statements.
1
Table of Contents
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in millions, except per share data)
Three Months Ended | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
Gross Income |
||||||||
Lease income |
$ | 224.8 | $ | 221.2 | ||||
Marine operating revenue |
11.1 | 8.3 | ||||||
Asset remarketing income |
8.9 | 14.4 | ||||||
Other income |
20.2 | 19.7 | ||||||
Revenues |
265.0 | 263.6 | ||||||
Share of affiliates earnings |
17.1 | 18.3 | ||||||
Total Gross Income |
282.1 | 281.9 | ||||||
Ownership Costs |
||||||||
Depreciation |
52.3 | 51.7 | ||||||
Interest expense, net |
42.9 | 42.6 | ||||||
Operating lease expense |
34.6 | 34.6 | ||||||
Total Ownership Costs |
129.8 | 128.9 | ||||||
Other Costs and Expenses |
||||||||
Maintenance expense |
69.3 | 67.8 | ||||||
Marine operating expense |
8.9 | 6.4 | ||||||
Selling, general and administrative |
36.4 | 33.5 | ||||||
Other expense |
11.9 | 19.0 | ||||||
Total Other Costs and Expenses |
126.5 | 126.7 | ||||||
Income before Income Taxes |
25.8 | 26.3 | ||||||
Income Taxes |
5.9 | 7.6 | ||||||
Net Income |
$ | 19.9 | $ | 18.7 | ||||
Per Share Data |
||||||||
Basic |
$ | 0.43 | $ | 0.41 | ||||
Average number of common shares (in millions) |
46.3 | 46.0 | ||||||
Diluted |
$ | 0.42 | $ | 0.40 | ||||
Average number of common shares and common share equivalents (in millions) |
47.0 | 47.5 | ||||||
Dividends declared per common share |
$ | 0.29 | $ | 0.28 |
The accompanying notes are an integral part of these consolidated financial statements.
2
Table of Contents
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Three Months Ended | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
Operating Activities |
||||||||
Net income |
$ | 19.9 | $ | 18.7 | ||||
Adjustments to reconcile income to net cash provided by (used in) operating
activities: |
||||||||
Gains on sales of assets |
(14.4 | ) | (17.1 | ) | ||||
Depreciation |
55.1 | 54.3 | ||||||
Asset impairment charges |
0.6 | 4.8 | ||||||
Deferred income taxes |
4.3 | 5.1 | ||||||
Share of affiliates earnings, net of dividends |
(17.1 | ) | (14.4 | ) | ||||
Change in income taxes payable |
4.7 | (4.5 | ) | |||||
Change in accrued operating lease expense |
(48.5 | ) | (52.9 | ) | ||||
Employee benefit plans |
(1.3 | ) | (1.5 | ) | ||||
Other |
33.5 | 7.2 | ||||||
Net cash provided by (used in) operating activities |
36.8 | (0.3 | ) | |||||
Investing Activities |
||||||||
Additions to operating assets and facilities |
(69.8 | ) | (67.8 | ) | ||||
Loans extended |
(9.1 | ) | | |||||
Investments in affiliates |
(17.2 | ) | (2.3 | ) | ||||
Other |
(0.1 | ) | (0.1 | ) | ||||
Portfolio investments and capital additions |
(96.2 | ) | (70.2 | ) | ||||
Purchases of leased-in assets |
(37.7 | ) | | |||||
Portfolio proceeds |
43.5 | 30.8 | ||||||
Proceeds from sales of other assets |
11.3 | 7.0 | ||||||
Net decrease (increase) in restricted cash |
1.9 | (0.4 | ) | |||||
Other |
(0.1 | ) | | |||||
Net cash used in investing activities |
(77.3 | ) | (32.8 | ) | ||||
Financing Activities |
||||||||
Net proceeds from issuances of debt (original maturities longer than 90 days) |
| 259.1 | ||||||
Repayments of debt (original maturities longer than 90 days) |
(26.8 | ) | (51.9 | ) | ||||
Net increase (decrease) in debt with original maturities of 90 days or less |
58.4 | (26.9 | ) | |||||
Payments on capital lease obligations |
(1.4 | ) | (1.4 | ) | ||||
Employee exercises of stock options |
0.5 | 0.1 | ||||||
Cash dividends |
(14.5 | ) | (13.9 | ) | ||||
Net cash provided by financing activities |
16.2 | 165.1 | ||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
(0.3 | ) | 0.1 | |||||
Net (decrease) increase in Cash and Cash Equivalents during the period |
(24.6 | ) | 132.1 | |||||
Cash and Cash Equivalents at beginning of period |
78.5 | 41.7 | ||||||
Cash and Cash Equivalents at end of period |
$ | 53.9 | $ | 173.8 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
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 months ended
March 31, 2011, are not necessarily indicative of the results that may be achieved for the entire
year ending December 31, 2011. In particular, ASCs 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, 2010, as set forth
in the Companys 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. Management has determined that the effect of this error is
immaterial and adjusted its Consolidated Balance Sheet and Consolidated Statement of Cash Flows in
2010 to correct this error.
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 | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
Revenues |
$ | 173.5 | $ | 176.1 | ||||
Pre-tax income reported by affiliates
|
49.1 | 31.1 |
4
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 4. Fair Value Disclosure
The following tables set forth GATXs assets and liabilities measured at fair value on a
recurring basis (in millions):
Quoted Prices in | Significant | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
March 31, | Identical Assets | Inputs | Inputs | |||||||||||||
2011 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Interest rate derivatives (a) |
$ | 16.1 | $ | | $ | 16.1 | $ | | ||||||||
Warrants and foreign exchange rate derivatives (b) |
1.4 | | 1.4 | | ||||||||||||
Available for sale equity securities |
4.3 | 4.3 | | | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate derivatives (a) |
4.3 | | 4.3 | | ||||||||||||
Foreign exchange rate derivatives (b) |
0.5 | | 0.5 | | ||||||||||||
Quoted Prices in | Significant | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
December 31, | Identical Assets | Inputs | Inputs | |||||||||||||
2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Interest rate derivatives (a) |
$ | 17.6 | $ | | $ | 17.6 | $ | | ||||||||
Warrants (b) |
0.8 | | 0.8 | | ||||||||||||
Available for sale equity securities |
4.3 | 4.3 | | | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate derivatives (a) |
4.6 | | 4.6 | | ||||||||||||
Foreign exchange rate derivatives (b) |
0.5 | | 0.5 | |
(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.
The following table sets forth certain disclosures relating to GATXs non-recurring Level 3
fair value measurements as of March 31 (in millions):
Fair Value of Assets |
Carrying Value of Assets |
Impairment Losses |
||||||||||
2011 |
$ | 0.7 | $ | 1.3 | $ | 0.6 | ||||||
2010 |
3.0 | 7.8 | 4.8 |
In 2011, impairment losses of $0.6 million related to scrapped wheelsets in Rails European
fleet. In 2010, impairment losses of $4.8 million related to an industry-wide, regulatory mandate
issued by the Association of American Railroads that resulted in a significant decrease to the
expected economic life of 358 aluminum hopper railcars. In each case, the fair value was
determined using discounted cash flow methodologies and third-party appraisal data, as applicable.
5
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 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 March 31, 2011 and December 31, 2010, GATX had three instruments
outstanding with an aggregate notional amount of $350.0 million for each period. As of March 31,
2011, 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 March 31, 2011 and December 31, 2010, GATX had 15 instruments and
13 instruments outstanding, respectively, with an aggregate notional amount of $230.0 million and
$130.4 million, respectively. As of March 31, 2011, these derivatives had maturities ranging from
2011-2015. Within the next 12 months, GATX expects to reclassify $6.3 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 GATXs 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
certain 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 March 31, 2011 was
$4.3 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, GATXs exposure is limited to the fair value of the swap if in
GATXs 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 impacts of GATXs derivative instruments
were (in millions):
Three Months Ended | ||||||||||||
March 31 | ||||||||||||
Derivative Designation | Location of Gain (Loss) Recognized | 2011 | 2010 | |||||||||
Fair value hedges (a) | Interest expense |
$ | (2.1 | ) | $ | 2.5 | ||||||
Cash flow hedges | Amount recognized in other comprehensive income (loss) (effective portion) |
1.0 | (3.4 | ) | ||||||||
Cash flow hedges | Amount reclassified from accumulated other
comprehensive loss to interest expense (effective portion) |
(1.9 | ) | (1.8 | ) | |||||||
Cash flow hedges | Amount reclassified from accumulated other
comprehensive loss to operating lease expense (effective portion) |
(0.4 | ) | (0.4 | ) | |||||||
Cash flow hedges | Amount recognized in other expense (ineffective portion) |
* | * |
* | Less than $0.1 million | |
(a) | Equally offsetting the amount recognized in interest expense was the fair value adjustment relating to the underlying debt. |
6
Table of Contents
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 were estimated based on discounted cash flow analyses
using interest rates currently offered for loans with similar terms to borrowers of similar credit
quality. The following table sets forth the carrying amounts and fair values of GATXs other
financial instruments as of (in millions):
March 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Assets |
||||||||||||||||
Investment Funds |
$ | 5.6 | $ | 8.1 | $ | 6.8 | $ | 10.2 | ||||||||
Liabilities |
||||||||||||||||
Recourse fixed rate debt |
$ | 2,467.0 | $ | 2,606.3 | $ | 2,459.3 | $ | 2,615.9 | ||||||||
Recourse floating rate debt |
343.6 | 343.6 | 342.5 | 341.5 | ||||||||||||
Nonrecourse debt |
193.1 | 207.3 | 217.2 | 233.0 |
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 GATXs 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 shows GATXs commercial commitments as of (in millions):
March 31 | December 31 | |||||||
2011 | 2010 | |||||||
Affiliate guarantees |
$ | 30.0 | $ | 30.0 | ||||
Asset residual value guarantees |
48.9 | 48.0 | ||||||
Lease payment guarantees |
51.2 | 52.7 | ||||||
Total guarantees (a) |
130.1 | 130.7 | ||||||
Standby letters of credit and bonds |
11.0 | 11.5 | ||||||
$ | 141.1 | $ | 142.2 | |||||
(a) | At March 31, 2011 and December 31, 2010, the carrying values of liabilities on the balance sheet for guarantees were $7.0 million and $7.3 million, respectively. The expirations of these guarantees range from 2011 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 that 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 GATXs 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 GATXs 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
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Lease payment guarantees represent GATXs guarantees to financial institutions of finance and
operating lease payments to unrelated parties. Any liability resulting from GATXs performance
pursuant to the lease payment guarantees will be reduced by the value realized from the underlying
asset or group of assets.
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 March 31, 2011, 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 evaluates whether an entity is a VIE based on the sufficiency of the entitys 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 VIEs 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 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 were (in millions):
March 31 | December 31 | |||||||
2011 | 2010 | |||||||
Operating assets, net of accumulated depreciation (a) |
$ | 108.6 | $ | 110.1 | ||||
Nonrecourse debt |
53.5 | 56.2 |
(a) | All operating assets are pledged as collateral on the nonrecourse debt. |
GATX is also involved with other entities determined to be VIEs of which GATX is not the
primary beneficiary. These VIEs are primarily leveraged leases and certain investments in
affiliates that are involved in railcar and equipment leasing activities, which 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.
The carrying amounts and maximum exposure to loss with respect to VIEs that GATX does not
consolidate were as follows (in millions):
March 31, 2011 | December 31, 2010 | |||||||||||||||
Net Carrying |
Maximum Exposure |
Net Carrying |
Maximum Exposure |
|||||||||||||
Amount | to Loss | Amount | to Loss | |||||||||||||
Investments in affiliates |
$ | 64.2 | $ | 64.2 | $ | 60.9 | $ | 60.9 | ||||||||
Leveraged leases |
73.9 | 73.9 | 74.1 | 74.1 | ||||||||||||
Other investment |
0.9 | 0.9 | 1.0 | 1.0 | ||||||||||||
Total |
$ | 139.0 | $ | 139.0 | $ | 136.0 | $ | 136.0 | ||||||||
8
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 7. Comprehensive Income
The components of comprehensive income were as follows (in millions):
Three Months Ended | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
Net income |
$ | 19.9 | $ | 18.7 | ||||
Other comprehensive income, net of taxes: |
||||||||
Foreign currency translation gain (loss) |
20.5 | (15.2 | ) | |||||
Unrealized gain on securities |
| 0.6 | ||||||
Unrealized gain on derivative instruments |
8.8 | 0.9 | ||||||
Post retirement benefit plans |
1.1 | 0.9 | ||||||
Comprehensive income |
$ | 50.3 | $ | 5.9 | ||||
NOTE 8. Share-Based Compensation
In the first quarter of 2011, GATX granted 415,800 stock appreciation rights (SARs), 200,026
restricted stock units, 87,570 performance shares and 5,805 phantom stock units. For the three
months ended March 31, 2011, total share-based compensation expense was $2.5 million ($1.5 million
after tax). For the three months ended March 31, 2010, total share-based compensation expense was
$1.8 million ($1.1 million after tax).
The weighted average estimated fair value of GATXs 2011 SAR awards and underlying assumptions
thereof are noted in the table below. The vesting period for the 2011 SAR grant is 3 years, with
1/3 vesting after each year.
2011 | ||||
Weighted average fair value of SAR award |
$ | 13.88 | ||
Annual dividend |
$ | 1.16 | ||
Expected life of the SAR, in years |
4.3 | |||
Risk free interest rate |
1.6 | % | ||
Dividend yield |
3.4 | % | ||
Expected stock price volatility |
41.91 | % |
NOTE 9. Income Taxes
GATXs effective tax rate was 23% for the three months ended March 31, 2011, compared to 29%
for the three months ended March 31, 2010. The difference in GATXs effective tax rate was largely
driven by variability in the mix of pre-tax income, including share of affiliates earnings, among
domestic and foreign jurisdictions, which are taxed at different rates.
As of March 31, 2011, GATXs gross liability for unrecognized tax benefits totaled $43.0
million, which, if fully recognized, would decrease income tax expense by $23.3 million ($21.2
million net of federal tax).
9
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 10. Pension and Other Post-Retirement Benefits
The components of pension and other post-retirement benefit costs for the three months ended
March 31, 2011 and 2010, were as follows (in millions):
2011 Retiree | 2010 Retiree | |||||||||||||||
2011 Pension | 2010 Pension | Health and | Health and | |||||||||||||
Benefits | Benefits | Life | Life | |||||||||||||
Service cost |
$ | 1.5 | $ | 1.4 | $ | | $ | 0.1 | ||||||||
Interest cost |
5.2 | 5.5 | 0.5 | 0.6 | ||||||||||||
Expected return on plan assets |
(8.3 | ) | (8.3 | ) | | | ||||||||||
Amortization of: |
||||||||||||||||
Unrecognized prior service credit |
(0.3 | ) | (0.3 | ) | | | ||||||||||
Unrecognized net actuarial loss |
2.0 | 1.7 | | | ||||||||||||
Net costs (a) |
$ | 0.1 | $ | | $ | 0.5 | $ | 0.7 | ||||||||
(a) | The amounts reported herein are based on estimated annual costs. Actual annual costs for the year ending December 31, 2011, may differ from these estimates. |
NOTE 11. 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 potentially dilutive
securities, including convertible preferred stock, employee stock options/SARs, restricted stock
and convertible debt.
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 | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
Numerator: |
||||||||
Net income |
$ | 19.9 | $ | 18.7 | ||||
Less: Dividends paid and accrued on preferred stock |
* | * | ||||||
Numerator for basic earnings per share income available to common shareholders |
$ | 19.9 | $ | 18.7 | ||||
Effect of dilutive securities: |
||||||||
Add: Dividends paid and accrued on preferred stock |
* | * | ||||||
After-tax interest expense on convertible securities |
| 0.2 | ||||||
Numerator for diluted earnings per share income available to common shareholders |
$ | 19.9 | $ | 18.9 | ||||
Denominator: |
||||||||
Denominator for basic earnings per share weighted average shares |
46.3 | 46.0 | ||||||
Effect of dilutive securities: |
||||||||
Equity compensation plans |
0.6 | 0.4 | ||||||
Convertible preferred stock |
0.1 | 0.1 | ||||||
Convertible securities |
| 1.0 | ||||||
Denominator for diluted earnings per share adjusted weighted average and
assumed conversion |
47.0 | 47.5 | ||||||
Basic earnings per share |
$ | 0.43 | $ | 0.41 | ||||
Diluted earnings per share |
$ | 0.42 | $ | 0.40 | ||||
* | Less than $0.1 million. |
10
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 12. 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 Companys consolidated financial statements as set forth in GATXs Annual Report on Form
10-K for the year ended December 31, 2010. 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 GATXs 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
Kolspeds ultimate parent company, PKP, from its guarantee of Kolspeds 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 Kolspeds 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 Banks 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 PKP, as a third party beneficiary of the Agreement.
DEC 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 PKPs claims. PKP appealed and, on March
24, 2011, the Court of Appeals rejected the appeal and reaffirmed the trial courts ruling. A
further appeal by PKP to the Supreme Court is pending.
As of March 31, 2011, PKPs claims for damages totaled approximately PLN 141.6 million, or
$49.8 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 $15.6 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.
NOTE 13. Financial Data of 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 investments.
11
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 segments financial performance reflects appropriate
risk-adjusted borrowing costs.
The following tables depict the profitability, financial position and capital expenditures of
each of GATXs business segments for the three months ended March 31, 2011 and 2010 (in millions):
Rail | Specialty | ASC | Other | GATX Consolidated | ||||||||||||||||
Three Months Ended March 31, 2011 |
||||||||||||||||||||
Profitability |
||||||||||||||||||||
Revenues |
$ | 236.8 | $ | 15.9 | $ | 12.1 | $ | 0.2 | $ | 265.0 | ||||||||||
Share of affiliates earnings |
7.1 | 10.0 | | | 17.1 | |||||||||||||||
Total gross income |
243.9 | 25.9 | 12.1 | 0.2 | 282.1 | |||||||||||||||
Ownership costs |
115.0 | 11.8 | 2.0 | 1.0 | 129.8 | |||||||||||||||
Other costs and expenses |
77.3 | 3.4 | 9.3 | 0.1 | 90.1 | |||||||||||||||
Segment profit (loss) |
$ | 51.6 | $ | 10.7 | $ | 0.8 | $ | (0.9 | ) | 62.2 | ||||||||||
SG&A |
36.4 | 36.4 | ||||||||||||||||||
Income before income taxes |
$ | 25.8 | ||||||||||||||||||
Capital Expenditures |
||||||||||||||||||||
Portfolio investments and capital additions |
$ | 53.9 | $ | 36.4 | $ | 5.2 | $ | 0.7 | $ | 96.2 | ||||||||||
Selected Balance Sheet Data at March 31, 2011 |
||||||||||||||||||||
Investments in affiliated companies |
$ | 151.8 | $ | 372.8 | $ | | $ | | $ | 524.6 | ||||||||||
Identifiable assets |
$ | 4,367.7 | $ | 760.4 | $ | 269.3 | $ | 101.3 | $ | 5,498.7 | ||||||||||
Three Months Ended March 31, 2010
|
||||||||||||||||||||
Profitability |
||||||||||||||||||||
Revenues |
$ | 236.7 | $ | 17.4 | $ | 9.3 | $ | 0.2 | $ | 263.6 | ||||||||||
Share of affiliates earnings |
8.6 | 9.7 | | | 18.3 | |||||||||||||||
Total gross income |
245.3 | 27.1 | 9.3 | 0.2 | 281.9 | |||||||||||||||
Ownership costs |
113.7 | 11.2 | 2.1 | 1.9 | 128.9 | |||||||||||||||
Other costs and expenses |
82.3 | 3.8 | 6.8 | 0.3 | 93.2 | |||||||||||||||
Segment profit (loss) |
$ | 49.3 | $ | 12.1 | $ | 0.4 | $ | (2.0 | ) | 59.8 | ||||||||||
SG&A |
33.5 | 33.5 | ||||||||||||||||||
Income before income taxes |
$ | 26.3 | ||||||||||||||||||
Capital Expenditures |
||||||||||||||||||||
Portfolio investments and capital additions |
$ | 48.1 | $ | 19.6 | $ | 1.6 | $ | 0.9 | $ | 70.2 | ||||||||||
Selected Balance Sheet Data at December 31,
2010 |
||||||||||||||||||||
Investments in affiliated companies |
$ | 141.0 | $ | 345.1 | $ | | $ | | $ | 486.1 | ||||||||||
Identifiable assets |
$ | 4,292.4 | $ | 741.0 | $ | 271.3 | $ | 137.7 | $ | 5,442.4 |
12
Table of Contents
Item 2. | Managements 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
GATXs Annual Report on Form 10-K for the year ended December 31, 2010, 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 GATXs primary
operating segments; conditions in the capital markets; changes in GATXs 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 GATXs primary
markets including lease pricing and asset availability; operational and financial risks associated
with long-term railcar purchase commitments; changes in loss provision levels within GATXs
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 managements
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 Managements 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 three months ended March 31, 2011 are not necessarily indicative of
the results that may be achieved for the entire year ending December 31, 2011. For further
information, refer to GATXs Annual Report on Form 10-K, as filed with the SEC, which contains the
Companys consolidated financial statements for the year ended December 31, 2010.
13
Table of Contents
DISCUSSION OF OPERATING RESULTS
Net income was $19.9 million, or $0.42 per diluted share, for the first quarter of 2011
compared to net income of $18.7 million, or $0.40 per diluted share, for the first quarter of 2010.
Results for the first quarter of 2011 include $6.4 million, or $0.14 per diluted share, of
after-tax unrealized gains related to certain interest rate swaps at GATXs European Rail
affiliate, AAE Cargo A.G. (AAE). First quarter 2010 results include $0.8 million, or $0.2 per
diluted share, of after-tax unrealized losses related to the interest rate swaps at AAE.
Total investment volume was $96.2 million for the first three months of 2011 compared to $70.2
million for the first three months of 2010.
The following table presents a financial summary of GATXs operating segments (in millions,
except per share data):
Three Months Ended | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
Gross Income |
||||||||
Rail |
$ | 243.9 | $ | 245.3 | ||||
Specialty |
25.9 | 27.1 | ||||||
ASC |
12.1 | 9.3 | ||||||
Total segment gross income |
281.9 | 281.7 | ||||||
Other |
0.2 | 0.2 | ||||||
Consolidated Gross Income |
$ | 282.1 | $ | 281.9 | ||||
Segment Profit |
||||||||
Rail |
$ | 51.6 | $ | 49.3 | ||||
Specialty |
10.7 | 12.1 | ||||||
ASC |
0.8 | 0.4 | ||||||
Total Segment Profit |
63.1 | 61.8 | ||||||
Less: |
||||||||
Selling, general and administrative expenses |
36.4 | 33.5 | ||||||
Unallocated interest expense, net |
1.1 | 2.0 | ||||||
Other income and expense, including eliminations |
(0.2 | ) | | |||||
Income taxes |
5.9 | 7.6 | ||||||
Consolidated Net Income |
$ | 19.9 | $ | 18.7 | ||||
Basic earnings per share |
$ | 0.43 | $ | 0.41 | ||||
Diluted earnings per share |
$ | 0.42 | $ | 0.40 |
Return on Equity
The following table presents GATXs return on equity (ROE) for the trailing twelve months
ended March 31:
2011 | 2010 | |||||||
ROE |
7.3 | % | 6.7 | % | ||||
ROE, excluding tax benefits and other items |
6.1 | % | 6.9 | % |
14
Table of Contents
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 and
GATXs share of affiliates 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 segments financial performance reflects appropriate
risk-adjusted borrowing costs.
Rail
Market
fundamentals continued to improve in the first quarter of 2011 as U.S. carloadings
increased, idle railcars declined, and lease rate pricing improved. Rails utilization in North
America increased to 97.8% compared to 97.4% at the end of 2010 and 96.0% at March 31, 2010. Lease
rates on renewals and assignments during the quarter were slightly lower than the expiring rates;
however, the rate of decline was substantially reduced compared to recent experience. The average
lease renewal rate on cars in the GATX Lease Price Index (the LPI, see definition below)
decreased 0.5% from the average expiring lease rate in the current quarter, compared to decreases
of 14.0% for the fourth quarter of 2010 and 15.2% for the first quarter of 2010. Rail entered 2011
with approximately 21,000 cars on leases scheduled to expire during the year, of which
approximately 4,200 occurred in the current quarter. Lease terms on renewals for cars in the LPI
averaged 41 months in the current quarter, compared to 36 months for the fourth quarter of 2010 and
31 months in the first quarter of 2010. Rails commercial team is focused on lease pricing
improvement in this recovering market. In Europe, Rails wholly-owned tank car fleet has increased
due to investments in new cars and there have been modest improvements in lease
pricing. Fleet utilization increased slightly to 95.8% compared to 95.7% at the end of 2010 and
94.4% at March 31, 2010. AAE, which serves the freight railcar markets, is beginning to experience
some improvement in its markets and fleet utilization is increasing. During the first three months
of 2011, Rails investment volume was $53.9 million, compared to $48.1 million in 2010. In March
2011, GATX entered into an agreement to acquire 12,500 newly built railcars that are expected to
deliver ratably over a five-year period.
Components of Rails operating results are outlined below (in millions):
Three Months Ended | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
Gross Income |
||||||||
Lease income |
$ | 209.4 | $ | 204.9 | ||||
Asset remarketing income |
7.6 | 12.5 | ||||||
Other income |
19.8 | 19.3 | ||||||
Revenues |
236.8 | 236.7 | ||||||
Affiliate earnings |
7.1 | 8.6 | ||||||
243.9 | 245.3 | |||||||
Ownership Costs |
||||||||
Depreciation |
47.9 | 47.6 | ||||||
Interest expense, net |
32.7 | 31.7 | ||||||
Operating lease expense |
34.4 | 34.4 | ||||||
115.0 | 113.7 | |||||||
Other Costs and Expenses |
||||||||
Maintenance expense |
68.9 | 67.4 | ||||||
Other costs |
8.4 | 14.9 | ||||||
77.3 | 82.3 | |||||||
Segment Profit |
$ | 51.6 | $ | 49.3 | ||||
15
Table of Contents
GATX Lease Price Index
The GATX Lease Price Index is an internally generated business indicator that measures general
lease rate pricing on renewals within Rails 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.
Rails Fleet Data
The following table summarizes certain fleet data for Rails North American railcars for the
quarters indicated:
March 31 | June 30 | September 30 | December 31 | March 31 | ||||||||||||||||
2010 | 2010 | 2010 | 2010 | 2011 | ||||||||||||||||
Beginning balance |
110,870 | 108,918 | 108,626 | 108,800 | 111,389 | |||||||||||||||
Cars added |
346 | 434 | 1,189 | 3,479 | 175 | |||||||||||||||
Cars scrapped |
(1,026 | ) | (726 | ) | (917 | ) | (870 | ) | (963 | ) | ||||||||||
Cars sold |
(1,272 | ) | | (98 | ) | (20 | ) | (821 | ) | |||||||||||
Ending balance |
108,918 | 108,626 | 108,800 | 111,389 | 109,780 | |||||||||||||||
Utilization rate at quarter end |
96.0 | % | 96.5 | % | 96.8 | % | 97.4 | % | 97.8 | % | ||||||||||
Average active railcars |
105,461 | 104,530 | 104,611 | 106,732 | 108,061 |
16
Table of Contents
The following table summarizes certain fleet data for Rails European railcars for the
quarters indicated:
March 31 | June 30 | September 30 | December 31 | March 31 | ||||||||||||||||
2010 | 2010 | 2010 | 2010 | 2011 | ||||||||||||||||
Beginning balance |
20,033 | 20,321 | 20,302 | 20,226 | 20,432 | |||||||||||||||
Cars added |
288 | 15 | 61 | 298 | 109 | |||||||||||||||
Cars scrapped or sold |
| (34 | ) | (137 | ) | (92 | ) | (17 | ) | |||||||||||
Ending balance |
20,321 | 20,302 | 20,226 | 20,432 | 20,524 | |||||||||||||||
Utilization rate at quarter end |
94.4 | % | 94.4 | % | 95.3 | % | 95.7 | % | 95.8 | % | ||||||||||
Average active railcars |
19,117 | 19,198 | 19,223 | 19,430 | 19,596 |
The following table summarizes certain fleet data for Rails North American locomotives for
the quarters indicated:
March 31 | June 30 | September 30 | December 31 | March 31 | ||||||||||||||||
2010 | 2010 | 2010 | 2010 | 2011 | ||||||||||||||||
Beginning balance |
529 | 535 | 536 | 542 | 550 | |||||||||||||||
Locomotives added |
6 | 1 | 6 | 8 | 10 | |||||||||||||||
Ending balance |
535 | 536 | 542 | 550 | 560 | |||||||||||||||
Utilization rate at quarter end |
90.3 | % | 98.1 | % | 98.7 | % | 97.6 | % | 97.7 | % | ||||||||||
Average active locomotives |
479 | 517 | 531 | 536 | 541 |
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Rails Lease Income
Components of Rails lease income are outlined below (in millions):
Three Months Ended | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
North American railcars |
$ | 162.0 | $ | 160.6 | ||||
European railcars |
38.6 | 36.3 | ||||||
Locomotives |
8.8 | 8.0 | ||||||
$ | 209.4 | $ | 204.9 | |||||
Comparison of the First Three Months of 2011 to the First Three Months of 2010
Segment Profit
Rails segment profit for the first three months of 2011 reflects unrealized gains of $7.2
million representing the change in the fair value of certain interest rate swaps at AAE, while
segment profit for the first three months of 2010 reflects unrealized losses of $0.9 million
related to the interest rate swaps. Excluding the effect of these items from each period, Rails
segment profit decreased $5.8 million, primarily due to lower asset remarketing income, lower
affiliate earnings, and the absence of end-of-lease settlements received in the prior year,
partially offset by higher North American lease income and scrapping gains, and the absence of a
prior year asset impairment charge.
Gross Income
Lease income in North America increased $2.2 million, primarily due to
an average of 2,600 more cars and 62 more locomotives on lease, partially offset by lower lease
rates compared to the prior year. In Europe, a $2.3 million increase in lease income was driven
primarily by an average of approximately 500 more cars on lease and higher lease rates. Asset
remarketing income decreased $4.9 million due to fewer railcar sales in the current year. Other
income was $0.5 million higher, primarily due to more scrapped cars at higher scrap rates largely
offset by the absence of income from end-of-lease settlements received in the prior year.
Affiliates earnings declined $1.5 million from the prior year. Excluding the impact of the
aforementioned interest rate swaps at AAE from the current and prior years, affiliates earnings
declined $9.6 million, primarily due to the combination of a current year charge related to a
bankrupt customer at AAE and the absence of a prior year asset remarketing gain at another
affiliate.
AAE holds multiple derivative instruments intended 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 gains
and losses were primarily driven by changes in the underlying benchmark interest rates. AAEs
earnings may be impacted by future unrealized gains or losses associated with these instruments.
Ownership Costs
Ownership costs were comparable to the prior year.
Other Costs and Expenses
In North America, maintenance costs increased by $2.9 million, primarily due to higher
railroad repair volumes and higher per car repair costs. In Europe, maintenance costs were $1.4
million lower, primarily due to the timing of the capitalization of new wheelsets in the prior year
in connection with the wheelset replacement program at GATXs European rail operations, partially
offset by a higher volume of underframe revisions in the current year.
Other costs in 2011 were $6.5 million lower than the prior year, primarily due to lower asset
impairment charges, storage and switching fees, and net remeasurement gains on non-functional
currency assets and liabilities in the current year compared to net losses in the prior year.
Asset impairment charges of $0.6 million in the current year related to wheelsets scrapped in
Europe in connection with the wheelset replacement program, while charges of $4.8 million in the
prior year were attributable to an Association of American Railroads industry-wide regulatory
mandate that resulted in a significant decrease to the expected economic life of 358 GATX aluminum
hopper railcars.
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Specialty
Specialtys total asset base, including off balance sheet assets, was $763.6 million at March
31, 2011, compared to $744.4 million at December 31, 2010, and $694.6 million at March 31, 2010.
Investment volume was $36.4 million in the first three months of 2011 compared to $19.6 million in
the prior year period. Investments in 2011 primarily consisted of $17.2 million in existing
affiliates, $10.0 million in equipment and a $9.1 senior secured loan. 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 a combination of inconsistent demand for marine transport services and vessel overcapacity in
these markets. Specialtys aircraft engine leasing affiliate continues to produce positive
operating results.
Components of Specialtys operating results are outlined below (in millions):
Three Months Ended | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
Gross Income |
||||||||
Lease income |
$ | 14.4 | $ | 15.3 | ||||
Asset remarketing income |
1.3 | 1.9 | ||||||
Other income |
0.2 | 0.2 | ||||||
Revenues |
15.9 | 17.4 | ||||||
Affiliate earnings |
10.0 | 9.7 | ||||||
25.9 | 27.1 | |||||||
Ownership Costs |
||||||||
Depreciation |
4.4 | 4.1 | ||||||
Interest expense, net |
7.1 | 6.8 | ||||||
Operating lease expense |
0.3 | 0.3 | ||||||
11.8 | 11.2 | |||||||
Other Costs and Expenses |
3.4 | 3.8 | ||||||
Segment Profit |
$ | 10.7 | $ | 12.1 | ||||
Specialtys Portfolio Data
The following table summarizes information on the owned and managed Specialty portfolio (in
millions):
March 31 | June 30 | September 30 | December 31 | March 31 | ||||||||||||||||
2010 | 2010 | 2010 | 2010 | 2011 | ||||||||||||||||
Net book value of owned assets (a) |
$ | 694.6 | $ | 699.4 | $ | 721.7 | $ | 744.4 | $ | 763.6 | ||||||||||
Net book value of managed
portfolio |
$ | 249.9 | $ | 239.9 | $ | 237.9 | $ | 234.5 | $ | 226.7 |
(a) | Includes off balance sheet assets. |
Comparison of the First Three Months of 2011 to the First Three Months of 2010
Segment Profit
Specialtys segment profit for the first three months of 2011 was $1.4 million lower than the
prior year, primarily due to lower lease and asset remarketing income.
Gross Income
Lease income was $0.9 million lower than the prior year, primarily due to lower pooled barge
income partially offset by income from new leases. Asset remarketing income was $0.6 million lower
than the prior year due to reduced remarketing activity. Affiliates earnings increased $0.3
million, primarily due to an affiliate asset remarketing gain on the sale of a vessel, largely
offset by an adjustment attributable to an accounting change for residual value guarantees.
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Ownership Costs
Ownership costs were $0.6 million higher than the prior year, primarily due to depreciation
and interest expenses on new investments.
Other Costs and Expenses
Other costs and expenses decreased $0.4 million, primarily due to lower operating costs for
pooled barges partially offset by the absence of a bad debt recovery received in the prior year.
ASC
ASC entered 2011 anticipating continued improvement in steel production, which is expected to
result in marginally higher tonnage volumes compared to prior year. As of April 27, 2011, ASC had
deployed 8 vessels. Discussions with customers regarding freight volume requirements for 2011 are
still in progress. As a result, ASC will continue to actively manage its fleet and deploy vessels
in a disciplined manner.
ASCs fleet is largely inactive for the first three months of each year due to the winter
conditions on the Great Lakes and first quarter freight volume is largely attributable to prior
year volume requirements completed in January. During the first three months of 2011, ASCs
freight volume of 1.2 million net tons was comparable to the prior year.
Components of ASCs operating results are outlined below (in millions):
Three Months Ended | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
Gross Income |
||||||||
Marine operating revenues |
$ | 11.1 | $ | 8.3 | ||||
Lease income |
1.0 | 1.0 | ||||||
12.1 | 9.3 | |||||||
Ownership Costs |
||||||||
Depreciation |
| | ||||||
Interest expense, net |
2.0 | 2.1 | ||||||
2.0 | 2.1 | |||||||
Other Costs and Expenses |
||||||||
Maintenance expense |
0.4 | 0.4 | ||||||
Marine operating expense. |
8.9 | 6.4 | ||||||
9.3 | 6.8 | |||||||
Segment Profit |
$ | 0.8 | $ | 0.4 | ||||
Comparison of the First Three Months of 2011 to the First Three Months of 2010
Segment Profit
ASCs segment profit for the first three months of 2011 was $0.4 million higher than the prior
year, primarily due to the mix of freight volume as more iron ore was shipped in the current year.
Gross Income
Gross income increased $2.8 million, primarily due to the mix of freight volume and higher
fuel surcharges, which were offset by higher operating expenses.
Ownership Costs
Ownership costs were comparable between the two periods.
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Other Costs and Expenses
Maintenance costs were comparable between the two periods. Marine operating expenses
increased $2.5 million, primarily due to increased fuel costs.
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 | ||||||||
March 31 | ||||||||
2011 | 2010 | |||||||
Selling, general and administrative expenses |
$ | 36.4 | $ | 33.5 | ||||
Unallocated interest expense, net |
1.1 | 2.0 | ||||||
Other income and expense, including eliminations |
(0.2 | ) | | |||||
Income taxes |
5.9 | 7.6 |
SG&A for the first three months of 2011 was $2.9 million higher than the prior year, primarily
due to higher compensation expenses. Unallocated interest expense (the difference between external
interest expense and amounts allocated to the reporting segments in accordance with assigned
leverage targets) was $0.9 million lower than the prior year, primarily due to the timing of debt
issuances and investment spending in each year. Other income and expense for the first three
months of 2011 and 2010 was immaterial.
Income Taxes
GATXs effective tax rate was 23% for the three months ended March 31, 2011, compared to 29%
for the three months ended March 31, 2010. The difference in GATXs effective tax rate was largely
driven by variability in the mix of pre-tax income, including share of affiliates earnings, among
domestic and foreign jurisdictions, which are taxed at different rates.
As of March 31, 2011, GATXs gross liability for unrecognized tax benefits totaled $43.0
million, which, if fully recognized, would decrease income tax expense by $23.3 million ($21.2
million net of federal tax).
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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 March 31, 2011,
GATX had unrestricted cash balances of $53.9 million.
The following table sets forth GATXs principal sources and uses of cash for the three months
ended March 31 (in millions):
2011 | 2010 | |||||||
Principal sources of cash |
||||||||
Net cash provided by (used in) operating activities |
$ | 36.8 | $ | (0.3 | ) | |||
Portfolio proceeds |
43.5 | 30.8 | ||||||
Other asset sales |
11.3 | 7.0 | ||||||
Proceeds from issuance of debt, commercial paper and credit facilities |
58.4 | 232.2 | ||||||
$ | 150.0 | $ | 269.7 | |||||
Principal uses of cash |
||||||||
Portfolio investments and capital additions |
$ | (96.2 | ) | $ | (70.2 | ) | ||
Repayments of debt, commercial paper and credit facilities |
(26.8 | ) | (51.9 | ) | ||||
Purchases of leased-in assets |
(37.7 | ) | | |||||
Payments on capital lease obligations |
(1.4 | ) | (1.4 | ) | ||||
Cash dividends |
(14.5 | ) | (13.9 | ) | ||||
$ | (176.6 | ) | $ | (137.4 | ) | |||
Net cash provided by operating activities for the first three months of 2011 was $36.8
million, an increase of $37.1 million from the prior year. The increase was primarily driven by
higher lease income and refunds for income and value added taxes in the current year compared to
payments in the prior year, partially offset by lower dividends from affiliates in the current
year. The prior year also included a $13.1 million adjustment to cash from operations resulting
from the correction of the overstatement of cash and cash equivalents at December 31, 2009.
Portfolio investments and capital additions for the first three months of 2011 totaled $96.2
million, an increase of $26.0 million from the prior year. Rail and Specialty investments in 2011
were $53.9 million and $36.4 million, respectively, compared to $48.1 million and $19.6 million,
respectively, in 2010.
Portfolio proceeds for the first three months of 2011 of $43.5 million increased by $12.7
million from the prior year, primarily due to higher proceeds from sales of equipment and finance
lease principal receipts. Proceeds from sales of other assets of $11.3 million for the first three
months of 2011 increased by $4.3 million from the prior year and primarily consisted of cash
received from the scrapping of railcars.
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 three months of 2011 were $58.4 million (net
of hedges and debt issuance costs). Debt repayments of $26.8 million for the first three months of
2011 consisted of scheduled debt maturities.
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Short-Term Borrowings
The following table provides certain information regarding GATXs short-term borrowings for
the quarter ended March 31, 2011:
North | ||||||||
America (a) | Europe (a) | |||||||
Balance as of March 31 (in millions) |
$ | 133.7 | $ | 42.1 | ||||
Weighted average interest rate |
0.4 | % | 2.8 | % | ||||
Euro/Dollar exchange rate |
n/a | 1.4158 | ||||||
Average monthly amount outstanding (in millions) |
$ | 105.1 | $ | 32.6 | ||||
Weighted average interest rate |
0.4 | % | 2.8 | % | ||||
Average Euro/Dollar exchange rate |
n/a | 1.3685 | ||||||
Maximum month-end amount outstanding (in millions) |
$ | 133.7 | $ | 42.1 | ||||
Euro/Dollar exchange rate |
n/a | 1.4158 |
(a) | Short-term borrowings in North America consist solely of commercial paper issued in the U.S. Short-term borrowings in Europe consist solely of borrowings under bank credit facilities. |
GATX has a $550 million unsecured revolving credit facility that matures in May 2012. As of
March 31, 2011, availability under this facility was $406.7 million, with $133.7 million of
commercial paper outstanding and $9.6 million of letters of credit issued, both of which are backed
by the facility.
Restrictive Covenants
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 GATXs 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 GATXs 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 March 31, 2011, GATX was in
compliance with all covenants and conditions of its credit agreements.
Credit Ratings
The availability of GATXs funding options may be affected by certain factors, including the
global capital market environment and outlook as well as GATXs financial performance. GATXs
access to capital markets at competitive rates is dependent on its credit rating and rating
outlook, as determined by rating agencies such as Standard & Poors (S&P) and Moodys Investor
Service (Moodys). As of March 31, 2011, GATXs long-term unsecured debt was rated BBB by S&P
and Baa1 by Moodys. GATXs rating outlook from both agencies was stable. GATXs short-term
unsecured debt was rated A-2 by S&P and P-2 by Moodys.
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Contractual Commitments
At March 31, 2011, GATXs contractual commitments, including debt maturities, lease payments,
and portfolio investments were (in millions):
Payments Due by Period | ||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
Recourse debt |
$ | 2,800.3 | $ | 238.9 | $ | 722.0 | $ | 306.0 | $ | 409.4 | $ | 449.2 | $ | 674.8 | ||||||||||||||
Nonrecourse debt |
200.2 | 40.1 | 25.6 | 33.7 | 58.3 | 31.4 | 11.1 | |||||||||||||||||||||
Commercial paper and credit facilities |
175.8 | 175.8 | | | | | | |||||||||||||||||||||
Capital lease obligations |
49.5 | 19.1 | 4.7 | 4.8 | 4.7 | 4.5 | 11.7 | |||||||||||||||||||||
Operating leases recourse |
1,011.6 | 37.9 | 114.6 | 106.0 | 109.5 | 127.2 | 516.4 | |||||||||||||||||||||
Operating leases nonrecourse |
252.4 | 20.7 | 28.0 | 28.3 | 27.8 | 26.3 | 121.3 | |||||||||||||||||||||
Portfolio investments (a) |
1,475.6 | 343.9 | 239.9 | 240.7 | 250.9 | 258.9 | 141.3 | |||||||||||||||||||||
$ | 5,965.4 | $ | 876.4 | $ | 1,134.8 | $ | 719.5 | $ | 860.6 | $ | 897.5 | $ | 1,476.6 | |||||||||||||||
(a) | Primarily railcar purchase commitments pursuant to a five-year supply agreement. |
Critical Accounting Policies
There have been no changes to GATXs critical accounting policies during the three months
ending March 31, 2011; refer to GATXs Annual Report on Form 10-K for the fiscal year ended
December 31, 2010, for a summary of GATXs policies.
Non-GAAP Financial Measures
This report includes certain financial performance measures computed using non-GAAP components
as defined by the SEC. GATX has provided a reconciliation of those non-GAAP components to the most
directly comparable GAAP components. Financial measures disclosed in this report are meant to
provide additional information and insight into the historical operating results and financial
position of the Company. Management uses these measures in analyzing GATXs financial performance
from period to period and in making 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.
GATX presents the financial measures of return on equity and net income that exclude the
effect of certain tax benefits and other items. Management believes that excluding these items
facilitates a more meaningful comparison of financial performance between years and provides
transparency into the operating results of GATXs business. In addition, GATX discloses total on
and off balance sheet assets because a significant portion of GATXs rail fleet has been financed
through sale-leasebacks that are accounted for as operating leases and the assets are not recorded
on the balance sheet. Management believes this information provides investors with a better
representation of the assets deployed in GATXs businesses.
Glossary of Key Terms
| Non-GAAP Financial Measures Numerical or percentage based measures of a companys historical performance, financial position or liquidity calculated using a component different from that presented in the financial statements as prepared in accordance with GAAP. | ||
| Net Income Excluding Tax Benefits and Other Items Earnings in 2010 and 2011 included certain items that GATX believes are not necessarily indicative of its operational performance. | ||
| 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 The total of on balance sheet assets and off balance sheet assets. |
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| Return on Equity Net income divided by average total shareholders equity. | ||
| Return on Equity Excluding Tax Benefits and Other Items Net income excluding tax benefits and other items divided by average total shareholders equity. |
Reconciliation
of Non-GAAP Components used in the Computation of Certain Financial
Measures
The following table presents Total On and Off Balance Sheet Assets (in millions):
March 31 | June 30 | September 30 | December 31 | March 31 | ||||||||||||||||
2010 | 2010 | 2010 | 2010 | 2011 | ||||||||||||||||
Consolidated On Balance Sheet Assets |
$ | 5,307.0 | $ | 5,083.0 | $ | 5,133.5 | $ | 5,442.4 | $ | 5,498.7 | ||||||||||
Off Balance Sheet Assets |
942.9 | 944.1 | 982.9 | 971.5 | 903.0 | |||||||||||||||
Total On and Off Balance Sheet Assets |
$ | 6,249.9 | $ | 6,027.1 | $ | 6,116.4 | $ | 6,413.9 | $ | 6,401.7 | ||||||||||
Shareholders Equity |
$ | 1,096.2 | $ | 1,044.9 | $ | 1,098.6 | $ | 1,113.7 | $ | 1,153.7 |
The following table presents GATXs net income for the trailing twelve months ended March 31
(in millions):
2011 | 2010 | |||||||
Net income, as reported |
$ | 82.0 | $ | 72.5 | ||||
Tax Benefits (a) |
(11.4 | ) | (7.4 | ) | ||||
Other Items (b) |
(2.0 | ) | 9.9 | |||||
Net income, excluding Tax Benefits and Other Items |
$ | 68.6 | $ | 75.0 | ||||
(a) | For the trailing twelve months of 2011, tax benefits include $9.5 million primarily attributable to the reversal of accruals resulting from the close of certain domestic and foreign tax audits and a $1.9 million deferred benefit attributable to a reduction of statutory rates in the United Kingdom. For the trailing twelve months of 2010, tax benefits include $7.4 million of realized foreign credits. | |
(b) | For the trailing twelve months of 2011, other items include $4.1 million (after-tax) of income from the favorable resolution of a litigation matter, partially offset by $2.1 million (after-tax) of unrealized losses on interest rate swaps at AAE. For the trailing twelve months of 2010, other items include $9.9 million (after-tax) of unrealized losses on interest rate swaps at AAE. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Since December 31, 2010, there have been no material changes in GATXs interest rate and
foreign currency exposures or types of derivative instruments used to hedge these exposures. For a
discussion of the Companys exposure to market risk, refer to Part II: Item 7A, Quantitative and
Qualitative Disclosure about Market Risk of the Companys Annual Report on Form 10-K for the year
ended December 31, 2010.
Item 4. Controls and Procedures
The Companys management, with the participation of its Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the Companys 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 Companys Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of the period covered by this quarterly report, the
Companys disclosure controls and procedures were effective.
No change in the Companys internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended March 31, 2011, that
materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
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Item 5. Other Information
(a) On April 25, 2011, the Company and Trinity Rail Group, LLC (Trinity) entered into a
First Amendment to Supply Agreement (the Amendment), pursuant to which the parties agreed to
amend certain terms of the Supply Agreement, dated March 14, 2011, between the Company and Trinity
(the Supply Agreement). Under the terms of the Supply Agreement, the Company agreed to purchase
12,500 newly built railcars over a five-year period.
The Amendment provides the parties with the flexibility to mutually agree in writing to
revised or additional terms in connection with an order or other matters under the Supply
Agreement.
The foregoing summary is qualified in its entirety by reference to the Amendment, which is
attached as an exhibit hereto.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
Information concerning litigation and other contingencies is described in Note 12 to the
consolidated financial statements and is incorporated herein by reference.
Item 1A. Risk Factors
Since December 31, 2010, there have been no material changes in GATXs risk factors. For
a discussion of GATXs risk factors, refer to Part 1: Item 1A, Risk Factors of the Companys
Annual Report on Form 10-K for the year ended December 31, 2010.
27
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Item 6. Exhibits
Exhibits: | ||
Reference is made to the exhibit index which is included herewith and is incorporated by reference hereto. |
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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: April 27, 2011
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Table of Contents
EXHIBIT INDEX
Exhibit Number |
Exhibit
Description |
|
Filed with this Report: | ||
10.1
|
Supply Agreement by and between GATX Corporation, as Buyer, and Trinity Rail Group, LLC, as Seller, dated March 14, 2011. (Note: Portions of this document have been omitted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission on April 27, 2011.) | |
10.1(a)
|
First Amendment to Supply Agreement by and between GATX Corporation, as Buyer, and Trinity Rail Group, LLC, as Seller, dated April 25, 2011. | |
10.2
|
GATX Corporation 2004 Equity Incentive Compensation Plan Restricted Stock Unit Agreement for grants to executive officers made on February 25, 2011.* | |
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 Corporations Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2011 and December 31, 2010, (ii) Consolidated Statements of Income for the three months ended March 31, 2011 and 2010, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010, and (iv) Notes to the Consolidated Financial Statements, tagged as block of text.** |
* | Compensatory Plans or Arrangements. | |
** | 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. |
30