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222 West Adams Street Chicago, Illinois60606-5314
(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
o 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).
Large accelerated filer þ Accelerated filer
o
Non-accelerated filer o
Smaller reporting company o
(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, 2009, 47.2 million common shares were outstanding.
GATX CORPORATION
FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2009
Commercial paper and borrowings under bank credit facilities
136.5
125.1
Recourse
2,363.1
2,376.2
Nonrecourse
240.5
243.3
Capital lease obligations
60.8
64.7
2,800.9
2,809.3
Deferred Income Taxes
714.0
710.9
Other Liabilities
338.7
399.1
Total Liabilities
3,980.1
4,065.9
Shareholders’ Equity
Preferred stock ($1.00 par value, 5,000,000 shares
authorized, 17,428 shares of Series A and B $2.50
Cumulative Convertible Preferred Stock issued and
outstanding as of March 31, 2009 and December 31, 2008,
aggregate liquidation preference of $1.0 million)
*
*
Common stock ($0.625 par value, 120,000,000 authorized,
65,104,827 and 65,051,639 shares issued and 47,207,402 and
48,725,953 shares outstanding as of March 31, 2009 and
December 31, 2008, respectively)
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 (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the three months ended
March 31, 2009, are not necessarily indicative of the results that may be achieved for the entire
year ending December 31, 2009. 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 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, 2008, as set forth in the
Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”).
Accounting Changes
On January 1, 2009, GATX adopted the provisions of Financial Accounting Standards Board
(“FASB”) Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”), for its 5%
convertible notes due 2023 (“2003 Notes”). FSP APB 14-1 amends the accounting for convertible debt
instruments that may be settled in cash (including partial cash settlement) upon conversion and
requires issuers of such convertible debt instruments to account separately for the liability
(debt) and equity (conversion option) components in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. FSP APB 14-1 requires bifurcation of a component of the
convertible debt, classification of that component as equity, and then amortization of the
resulting discount on the debt as additional interest expense over the expected term of the debt.
See Note 11 for additional details.
GATX applied the provisions of FSP APB 14-1 on a retrospective basis for all periods
presented. The effects of the application on GATX’s previously issued financial statements were as
follows ($ in millions, except per share amounts):
In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
141(R), Business Combinations (“SFAS 141(R)”). SFAS 141(R) requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree at the
acquisition date, measured at their fair values as of that date; the immediate expense recognition
of transaction costs; and the accounting for restructuring costs separately from the business
combination. This Statement also requires the acquirer in a business combination achieved in stages
(sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities,
as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values.
SFAS 141(R) became effective for GATX as of January 1, 2009 and
had no impact on its consolidated financial position, results of operations or cash flows.
GATX adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an
amendment of ARB No. 51 (“SFAS 160”), as of January 1, 2009. SFAS 160 requires entities to report
noncontrolling (minority) interests of consolidated subsidiaries as a component of shareholders’
equity on the balance sheet, include all earnings of a consolidated subsidiary in consolidated
results of operations, and treat all transactions between an entity and the noncontrolling interest
as equity transactions between the parties. GATX does not consolidate any partially owned
subsidiaries and therefore the application of this standard had no impact on its consolidated
financial position, results of operations or cash flows.
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities (“SFAS 161”), which requires enhanced disclosures about a company’s use of derivative
instruments, its applicable accounting policies related to derivatives, and the effect of those
derivatives on its financial position, results of operations and cash flows. GATX adopted the
provisions of SFAS 161 as of January 1, 2009. The application of SFAS 161 had no impact on GATX’s
financial position, results of operations or cash flows. See Note 4 for additional details.
New Accounting Pronouncements
In April 2009, the FASB issued three FASB Staff Positions (“FSP”), (collectively the “FSPs”)
that provide additional guidance and require enhanced disclosures regarding certain fair value
measurements. FSP FAS No. 157-4, Determining Fair Value when the Volume and Activity for the Asset
or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP
FAS 157-4”), provides guidance for determining fair values when markets become inactive and for
identifying distressed transactions. FSP FAS No. 115-2 and FSP FAS 124-2, Recognition and
Presentation of Other-than-Temporary Impairments (“FSP FAS 115-2”), amends the guidance for
determining whether debt securities are other-than-temporarily impaired and requires enhanced
presentation and disclosure of other-than-temporary impairments on debt and equity securities in a
company’s financial statements. FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments (“FSP FAS 107-1”), requires disclosures about the fair values of
financial instruments in interim and annual financial statements. The FSPs are effective for
interim and annual reporting periods ending after June 15, 2009. GATX expects to apply the
provisions of the FSPs for the period ending June 30, 2009, and does not expect their application
to have a material impact to its consolidated financial position, results of operations or cash
flows.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 in both domestic and foreign markets.
Operating results for all affiliated companies, assuming GATX held a 100% interest, would be
(in millions):
Three Months Ended
March 31
2009
2008
Revenues
$
165.3
$
159.3
Pre-tax (loss) income reported by affiliates
(1.9
)
45.3
NOTE 4. Fair Value Disclosure
At March 31, 2009, the fair values of GATX’s financial instruments, which are remeasured on a
recurring basis, are summarized below (in millions):
GATX enters into derivative transactions for purposes of hedging specific financial exposures,
primarily movements in foreign currency exchange rates and changes in benchmark interest rates.
GATX does not hold or issue derivative financial instruments for purposes other than hedging,
except for warrants, which are held for investment purposes and are not hedges. Certain
derivatives may not meet the established criteria to be designated as qualifying accounting hedges,
even though GATX believes they are effective economic hedges. For the three months ended March 31,2009 and 2008, amounts recognized in earnings for derivatives that did not qualify as accounting
hedges were immaterial.
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 attributable to the hedged risk
are recognized in earnings as interest expense. As of March 31, 2009, maturities for fair value
hedges range from 2009-2015.
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, 2009, maturities for qualifying cash flow hedges ranged
from 2009-2015. Within the next 12 months, GATX expects to reclassify $2.8 million ($1.7 million
after tax) of net losses on cash flow hedges from accumulated other comprehensive loss to earnings
as interest expense related to the hedged risks affect earnings. Changes in the fair value of the
ineffective portion of cash flow hedges are immediately recognized in earnings. For the three
months ended March 31, 2009 and 2008, amounts recognized in earnings for ineffectiveness were
immaterial.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
As of March 31, 2009, GATX had 22 derivative instruments outstanding with an aggregate
notional amount of $553 million. The income statement impacts of these instruments for the three
months ended March 31 were as follows (in millions):
Amount recognized in other
comprehensive income (effective
portion)
$
5.1
Cash flow hedges
Amount reclassified from
accumulated other comprehensive
loss to interest expense
(effective portion)
$
(1.1
)
Cash flow hedges
Amount reclassified from
accumulated other comprehensive
loss to operating lease expense
(effective portion)
$
(0.2
)
(a)
Offsetting the loss in interest expense was a gain relating to the fair value adjustment to the
hedged item.
GATX’s derivative instruments contain credit risk provisions that could require GATX to make
immediate payment on derivative instruments in 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 March 31, 2009, was $24.3 million. GATX is not required to post any collateral on
its derivative instruments and does not expect the credit risk provisions to be triggered.
See Note 3 of GATX’s Annual Report on Form 10-K for the year ended December 31, 2008, for
GATX’s accounting policy with respect to derivatives.
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):
March 31
December 31
2009
2008
Affiliate guarantees
$
46.8
$
47.6
Asset residual value guarantees
48.1
52.1
Lease payment guarantees
63.5
63.9
Other
77.8
77.8
Total guarantees (a)
236.2
241.4
Standby letters of credit and bonds
13.3
13.6
$
249.5
$
255.0
(a)
At March 31, 2009, the recorded value of GATX’s guarantees was a liability of $8.8 million.
The expirations of these guarantees range from 2009 to 2019.
Affiliate guarantees generally involve guaranteeing repayment of the financing utilized by an
affiliate to acquire or lease-in assets, which are subsequently leased-out to third parties, 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. Revenue is earned for
providing these guarantees in the form of an initial fee (which is amortized into income over the
guarantee period) and by sharing in any proceeds received upon disposition of the assets
to the extent such proceeds are in excess of the amount guaranteed (which is recognized when
realized). Any liability resulting
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
from GATX’s performance pursuant to these guarantees will be reduced by the value realized from the underlying asset or group of assets. Historically, gains
associated with the settlement of residual value guarantees have exceeded any losses and were
recorded in asset remarketing income in the consolidated statements of operations. Based on known
facts and current market conditions, management does not believe that the asset residual value
guarantees will result in any significant adverse financial impact to the Company. GATX believes
these asset residual value guarantees will likely generate future income in the form of fees and
residual sharing proceeds.
Lease payment guarantees represent GATX’s guarantees to financial institutions of finance and
operating lease payments of unrelated parties in exchange for a fee.
Other consists of GATX’s potential reimbursement obligation to Airbus S.A.S. (“Airbus”) for
amounts Airbus may be required to pay under certain specified circumstances to GATX Flightlease
Aircraft Ltd. (“GFAC”), a joint venture partially owned by GATX, in connection with an aircraft
purchase contract entered into by GFAC and Airbus in 2001. GATX’s potential reimbursement
obligation is capped at $77.8 million. No liability has been recorded with respect to this
potential reimbursement as GATX believes that the likelihood of any required payment is remote.
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, 2009, management does not expect any material
losses to result from these off balance sheet instruments since performance is not expected to be
required.
NOTE 6. Variable Interest Entities
GATX has investments that are considered VIEs in accordance with FIN 46(R). GATX determines
whether an entity is a VIE based on the sufficiency of the entity’s equity and the correlation
between economic and voting rights of the entity’s investors. The determination of whether GATX is
the primary beneficiary of a VIE is based on an analysis of the variable interests held by GATX and
the level to which those variable interests will absorb expected losses or receive the expected
residual returns in 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’s investments in VIEs primarily consist of leveraged leases and certain investments in
affiliates that were acquired or entered into between 1994 and 2002. These VIEs are involved in
railcar and equipment leasing activities and are typically financed through a mix of equity
investments, debt from equity investors and third party lending arrangements. GATX determined that
it is not the primary beneficiary of these VIEs because it does not absorb the majority of expected
losses or receive the majority of expected residual returns associated with them. As a result, GATX
does not consolidate these VIEs. GATX continues to evaluate new investments for the application of
FIN 46(R) and regularly reviews all existing entities in connection with any reconsideration events
(as defined in FIN 46(R)) that may result in an entity becoming a VIE or in GATX becoming the
primary beneficiary of an existing VIE.
At March 31, 2009, the carrying amount and maximum exposure to loss with respect to GATX’s
VIEs was as follows (in millions):
Net
Maximum
Carrying
Exposure
Amount
to Loss
Investments in affiliates (a)
$
27.0
$
43.8
Leveraged leases
83.1
83.1
Total
$
110.1
$
126.9
(a)
The difference between the carrying value and maximum loss exposure relates to GATX’s
guarantee of an affiliate’s lease obligation that runs through 2018.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 7. Comprehensive Income
The components of comprehensive (loss) income for the three months ended March 31 were as
follows (in millions):
2009
2008
Net income
$
27.6
$
51.8
Other comprehensive (loss) income, net of tax:
Foreign currency translation (loss) gain
(35.2
)
32.4
Unrealized (loss) gain on securities
(0.5
)
0.3
Unrealized loss on derivative instruments
(3.2
)
(10.9
)
Post retirement benefit plans
0.1
0.1
Comprehensive (Loss) Income
$
(11.2
)
$
73.7
NOTE 8. Share-Based Compensation
In the first quarter of 2009, GATX granted 393,700 stock appreciation rights (“SARs”), 84,280
restricted stock units, 91,570 performance shares, and 10,673 phantom stock units. For the three
months ended March 31, 2009 and 2008, total share-based compensation expense was $1.8 million ($1.1
million after tax) and $2.3 million ($1.4 million after tax), respectively.
The weighted average estimated fair value of GATX’s 2009 SAR awards and underlying assumptions
thereof are noted in the table below. The vesting period for the 2009 SAR grant is three years,
with 1/3 vesting after each year.
2009
Weighted average fair value of SAR award
$
7.35
Annual dividend
$
1.12
Expected life of the option, in years
4.3
Risk free interest rate
1.72
%
Dividend yield
6.6
%
Expected stock price volatility
35.98
%
NOTE 9. Income Taxes
GATX’s effective tax rate was 30% for the three months ended March 31, 2009, compared to 22%
for the three months ended March 31, 2008. In 2008, the statute of limitations on a state income
tax position taken in a prior period expired, resulting in the recognition of previously
unrecognized tax benefits of $6.8 million. In the current year, 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 three months of 2009 and 2008 was 36% and 33% respectively.
As of March 31, 2009, GATX’s gross liability for unrecognized tax benefits totaled $53.5
million, which, if fully recognized, would decrease income tax expense by $36.3 million ($34.2
million net of federal tax).
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, 2009 and 2008, were as follows (in millions):
2009 Retiree
2008 Retiree
2009 Pension
2008 Pension
Health and
Health and
Benefits
Benefits
Life
Life
Service cost
$
1.2
$
1.2
$
—
$
—
Interest cost
5.9
5.9
0.7
0.8
Expected return on plan assets
(7.6
)
(8.0
)
—
—
Amortization of:
Unrecognized prior service credit
(0.3
)
(0.2
)
—
—
Unrecognized net loss (gain)
0.7
0.3
(0.1
)
0.1
Net costs (a)
$
(0.1
)
$
(0.8
)
$
0.6
$
0.9
(a)
The amounts reported herein are based on estimated annual costs. Actual annual costs for
the year ending December 31, 2009, may differ from these estimates.
NOTE 11. Convertible Debt
In August 2003, GATX issued $125.0 million, 5.0% senior unsecured notes, due in August 2023
(the “2003 Notes”). The 2003 Notes are contingently convertible into GATX common stock upon the
resolution of any of five contingencies, as described in Note 13 of the Company’s Annual Report on
Form 10-K for the year ended December 31, 2008. In accordance with FSP APB 14-1, at the time of
issuance, GATX separated the convertible notes into liability and equity components based on the
fair value of the liability component. The resulting debt discount was amortized over five years
and was fully amortized by August 2008. For the three months ended March 31, 2008, $1.9 million of
interest expense was recorded, resulting in an effective interest rate of approximately 7.3%.
The following table sets forth certain information relating to the 2003 Notes as of:
March 31
December 31
2009
2008
Principal balance (in millions)
$
41.9
$
41.9
Carrying amount of equity component (in millions)
$
4.3
$
4.3
GATX common stock price
$
20.23
$
30.97
Conversion price
$
24.81
$
24.81
Potential number of shares issued upon conversion (in millions)
1.7
1.7
NOTE 12. Capital Structure and Earnings per Share
On January 23, 2008, the Company’s Board of Directors authorized a $200 million share
repurchase program. As of March 31, 2009, 3.8 million shares have been repurchased for $106.7
million. The repurchased shares were recorded as treasury stock under the cost method.
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, stock options, SARs, restricted stock
and convertible debt.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following table sets forth the computation of basic and diluted earnings per common share
(in millions, except per share amounts):
Three Months Ended
March 31
2009
2008
Numerator:
Net income
$
27.6
$
51.8
Less: Dividends paid and accrued on preferred stock
*
*
Numerator for basic earnings per share — income available to common shareholders
$
27.6
$
51.8
Effect of dilutive securities:
Add: Dividends paid and accrued on preferred stock
*
*
After-tax interest expense on convertible securities
0.3
1.3
Numerator for diluted earnings per share — income available to common shareholders
$
27.9
$
53.1
Denominator:
Denominator for basic earnings per share — weighted average shares
48.3
46.8
Effect of dilutive securities:
Equity compensation plans
0.2
0.4
Convertible preferred stock
0.1
0.1
Convertible securities
1.7
4.3
Denominator for diluted earnings per share — adjusted weighted average and
assumed conversion
50.3
51.6
Basic earnings per share
$
0.57
$
1.10
Diluted earnings per share
$
0.56
$
1.03
*
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 Part
I, Item 3, Legal Proceedings of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008. Except as noted below, there have been no material changes or developments in
these matters.
Flightlease Litigation
In 1999, GATX Third Aircraft Corporation (“Third Aircraft”), an indirect wholly-owned
subsidiary of GATX Financial Corporation (“GFC”, which merged into GATX in 2007), entered into a
joint venture agreement with Flightlease Holdings (Guernsey) Ltd. (“FHG”), an indirect wholly-owned
subsidiary of the SAirGroup, and formed a joint venture entity, GATX Flightlease Aircraft Ltd.
(“GFAC”) to purchase a number of aircraft. In September 1999, GFAC entered into an agreement (the
“GFAC Agreement”) with Airbus S.A.S. (“Airbus”) and by October 1, 2001, GFAC had ordered a total of
41 aircraft (the “GFAC Aircraft”) from Airbus and had made aggregate unutilized pre-delivery
payments (“PDPs”) to Airbus of approximately $227.6 million. Subsequently, on October 4, 2001, the
joint venture partners entered into an agreement (the “Split Agreement”) pursuant to which the
parties agreed (i) to divide responsibility for the GFAC Aircraft, (ii) to allocate the PDPs
between them in the amounts of approximately $77.8 million to Third Aircraft and approximately
$149.8 million to FHG, and (iii) that each would enter into separate agreements with Airbus to
purchase its allocated aircraft or equivalent aircraft (such aircraft allocated to Third Aircraft
being the “GATX Allocated Aircraft”). Subsequently, GFC and an affiliate of Airbus entered into a
new purchase agreement for the GATX Allocated Aircraft (the “GATX Agreement”) and GFC received a
credit of $77.8 million of the PDPs towards the acquisition of the aircraft. In connection with the
GATX Agreement, GFC agreed that in certain specified circumstances it would pay to Airbus any
amount up to $77.8 million which Airbus is required to pay to GFAC in reimbursement of PDPs paid by
GFAC with respect to the GATX Allocated Aircraft (such agreement being the “Reimbursement
Agreement”). Under the Split Agreement, FHG was to take the benefit of the remaining PDPs allocated
to it (approximately $149.8 million) and enter into a new contract with Airbus but, following
SAirGroup’s bankruptcy, FHG did not enter into such a contract, and Airbus then declared GFAC in
default and retained the approximately $149.8 million in PDPs held by it as damages.
On October 10, 2005, GFAC filed a complaint in the Supreme Court of the State and County of
New York against Airbus
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
alleging that Airbus’ termination of the GFAC Agreement was wrongful and
seeking restitution and damages in an unspecified amount in the “millions of dollars.” On December7, 2005, FHG, acting by its liquidators (the “FHG Liquidators”), filed a motion to intervene and an
accompanying complaint, which was granted on February 16, 2006 (the “Airbus Action”).
On October 14, 2005, the FHG Liquidators filed a complaint in the United States District Court
for the Northern District of California, purportedly as a derivative complaint on behalf of GFAC,
against GFC, Third Aircraft, and Mr. James H. Morris and Mr. Alan M. Reinke, then officers of a
division of GFC (the “FHG Action”). The complaint alleged that Messrs. Morris and Reinke, as
directors of GFAC, breached their fiduciary duties and that GFC and Third Aircraft knowingly
assisted such breaches, thereby depriving GFAC of assets. The complaint seeks damages in an amount
including, but not necessarily limited to, approximately $227.6 million. In certain specified
circumstances, Messrs. Morris and Reinke are indemnified against losses they suffer or incur as a
result of their service as GFAC directors. The Company believes there is no valid basis for any
claim made by the FHG Liquidators in the complaint against GFC, Third Aircraft, and/or Messrs.
Morris and Reinke.
The parties to the FHG Action entered into a Tolling and Standstill Agreement (the “Tolling
Agreement”) in October of 2006 which, among other things, provides for a standstill of claims or
potential claims until the conclusion of the Airbus Action described above. The Tolling Agreement
does not resolve the merits or liability for (or against) any claims nor require payment of any
monetary damages by any party to another party.
On February 6, 2009, the New York Court in the Airbus Action issued an opinion that granted
the FHG Liquidators’ motion for summary judgment on liability, holding that Airbus’s termination of
the GFAC Agreement was a breach of the agreement. Airbus subsequently filed a motion for
reconsideration of the Court’s summary judgment ruling on liability, and the FHG Liquidators filed
a motion for entry of judgment on damages for the full amount of the PDPs paid by GFAC plus
interest. The Court has not yet issued a ruling on these cross motions.
Should GFAC ultimately succeed in recovering from Airbus those PDPs with respect to the GATX
Allocated Aircraft, Airbus may attempt to seek from GATX, as a successor in interest to GFC,
payment under the Reimbursement Agreement in an amount equal to the lesser of (x) the amount so
recovered or (y) approximately $77.8 million. In light of the New York Court’s February 6, 2009,
decision that Airbus breached the GFAC Agreement and other relevant facts, the Company believes
that it does not have an obligation to make such a payment to Airbus under the Reimbursement
Agreement. Further, the Company believes that its subsidiary, Third Aircraft, may be entitled to
an appropriate portion of any ultimate recovery by the joint venture.
The Company believes that the likelihood of loss with respect to these matters is remote and
as a result has not recorded any accrual as of March 31, 2009. While it is reasonably possible
that the Company may ultimately incur a loss in these matters, at this time an estimate of the
amount of such loss cannot be made.
NOTE 14. Financial Data of Business Segments
The financial data presented below conforms to SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, and depicts the profitability, financial position and capital
expenditures of each of GATX’s continuing 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 leases tank cars, freight cars and locomotives in North America and Europe. Rail
primarily provides railcars 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.
ASC
owns and operates the largest fleet of U.S. flagged vessels on the Great Lakes, providing
waterborne transportation of dry bulk commodities for a range of industrial customers.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 other costs
that management believes are directly associated with the maintenance or operation of the revenue
earning assets. Other costs include maintenance costs, marine operating costs, asset impairment
charges and other costs such as litigation, 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 an appropriate
risk-adjusted cost of capital.
The following tables present certain segment data for the three months ended March 31, 2009
and 2008 (in millions):
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 and other filings with the 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 asset segments; conditions in the capital markets; changes in GATX’s credit
ratings; regulatory rulings that may impact the economic value and operating costs of assets;
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; the outcome of pending or threatened litigation; and other
factors. 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 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, 2009, are not necessarily indicative of
the results that may be achieved for the entire year ending December 31, 2009. For further
information, refer to GATX’s Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission (“SEC”), which contains the Company’s consolidated financial statements for the year
ended December 31, 2008.
Net income was $27.6 million or $.56 per diluted share for the first three months of 2009
compared to net income of $51.8 million or $1.03 per diluted share in the first quarter of 2008.
The 2009 first quarter results include an after-tax unrealized loss of $11.6 million, representing
the change in the fair value of certain interest rate swaps at GATX’s AAE Cargo affiliate, and the
2008 first quarter results include a $6.8 million after tax benefit from the reversal of tax
reserves. Results for 2008 have been restated to reflect the adoption of FASB Staff Position No.
APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement). See Note 2 to the consolidated financial statements for
further information.
Total investment volume was $79.3 million for the first three months of 2009 compared to $71.4
million for the first three months of 2008.
The following table presents a financial summary of GATX’s operating segments (in millions,
except per share data):
Three Months Ended
March 31
2009
2008
Gross Income
Rail
$
225.5
$
253.5
Specialty
36.5
42.2
ASC
2.2
15.2
Total segment gross income
264.2
310.9
Other income
0.2
0.2
Consolidated Gross Income
264.4
311.1
Segment Profit
Rail
43.1
73.8
Specialty
23.0
30.0
ASC
4.8
0.7
Total Segment Profit
70.9
104.5
Less:
Selling, general and administrative expenses
33.0
38.5
Unallocated interest expense, net
(0.1
)
(0.4
)
Other income and expense, including eliminations
(1.5
)
(0.3
)
Income taxes
11.9
14.9
Net Income
$
27.6
$
51.8
Basic earnings per share
$
0.57
$
1.10
Diluted earnings per share
$
0.56
$
1.03
Return on Equity
GATX’s return on equity (“ROE”) is based on net income and is shown for the trailing twelve
months ended March 31:
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 other costs
that management believes are directly associated with the maintenance or operation of the revenue
earning assets. Other costs include maintenance costs, marine operating costs, asset impairment
charges and other costs such as litigation, 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
Segment Summary
In the current quarter, economic weakness in North America negatively impacted lease pricing
and demand for railcars. After holding steady throughout 2008, North American fleet utilization
decreased to 96.5% compared to 97.9% at the end of 2008. Lease end returns and returns related to
customer bankruptcy filings contributed equally to this reduction. In addition, average lease
renewal pricing on cars in the GATX Lease Price Index (the “LPI”) (see definition below) decreased
5.5% over the average expiring lease rates, compared to increases of 3.3% for the fourth quarter of
2008 and 11.6% for the first quarter of 2008. Lease terms on renewals for cars in the LPI averaged
45 months in the first quarter of 2009, compared to 65 months for the fourth quarter of 2008 and 65
months in the first quarter of 2008. In Europe, economic weakness is also having a negative impact
on operations. Rail’s wholly-owned tank car fleet is performing relatively well due to a high
concentration of cars deployed in the more stable petroleum market. Fleet utilization decreased
modestly to 96.5% from 97.1% at the end of 2008 and customers renewed a majority of leases that
expired in the first quarter of 2009. However, Rail’s AAE Cargo affiliate is experiencing
substantial market pressure due to its concentration in freight cars, particularly intermodal cars.
During the first three months of 2009, Rail’s investments, which consisted primarily of new
railcars acquired pursuant to existing commitments, were $70.5 million compared to $54.5 million in
2008.
Components of Rail’s operating results are outlined below (in millions):
Components of Rail’s lease income are outlined below (in millions):
Three Months Ended
March 31
2009
2008
North America
$
175.6
$
172.6
Europe
32.8
38.3
Locomotives
8.1
8.6
$
216.5
$
219.5
GATX Lease Price Index
The LPI 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 asset types that GATX believes to be representative of its overall
North American fleet. The LPI measures the percentage change between the weighted average expiring
lease rate and the weighted average renewal lease rate. Average renewal term reflects the weighted
average renewal lease term in months.
The following table sets forth certain metrics for railcars in the LPI:
Three Months Ended
March 31
2009
2008
Average Renewal Lease Rate Change
(5.5
)%
11.6
%
Average Renewal Term (months)
45
65
Rail’s Fleet Data
The following table summarizes fleet activity for Rail’s wholly-owned North American railcars:
Three Months Ended
March 31
2009
2008
Beginning balance
112,976
112,445
Cars added
354
725
Cars scrapped or sold
(1,004
)
(2,416
)
Ending balance
112,326
110,754
Utilization rate at quarter end
96.5
%
98.1
%
The following table summarizes fleet activity for Rail’s wholly-owned European railcars:
Three Months Ended
March 31
2009
2008
Beginning balance
19,724
19,435
Cars added
190
56
Cars scrapped or sold
(28
)
(8
)
Ending balance
19,886
19,483
Utilization rate at quarter end
96.5
%
97.5
%
Comparison of the First Three Months of 2009 to the First Three Months of 2008
Segment Profit
Rail’s segment profit for the first three months of 2009 was significantly impacted by a $14.3
million unrealized loss representing the change in the fair value of certain interest rate swaps at
its AAE Cargo affiliate. Excluding the unrealized loss, Rail’s segment profit decreased $16.4 million from 2008, primarily due to lower asset
remarketing income and scrapping gains.
Lease income in North America increased $3.0 million, primarily the result of an average of
over 1,000 more cars on lease, largely due to the Allco fleet acquisition completed at the end of
2008. In Europe, lease income decreased $5.5 million due to weaker foreign exchange rates,
partially offset by an average of over 220 more cars on lease. Asset remarketing income decreased
$6.3 million as the current year included a $4.0 million residual sharing fee while the prior year
included the disposition of nearly 1,400 railcars. Other income was lower in 2009 primarily due to
lower scrap income. Affiliate earnings in 2009 were lower due to the $14.3 million unrealized loss
at AAE. Excluding the unrealized loss, 2009 affiliate earnings were comparable to 2008. However,
pressures in the European freight car market are intense, particularly in intermodal cars where AAE
has substantial exposure. It is likely that AAE’s operating performance will be under increasing
stress as 2009 progresses.
AAE holds multiple derivative instruments to hedge interest rate risk associated with
forecasted floating rate debt issuances related to future new car orders. These instruments do not
qualify for hedge accounting based on their applicable terms and as a result, changes in their fair
values are recognized currently in income. The unrealized loss recognized in 2009 was primarily
driven by the significant decline in benchmark interest rates. AAE’s earnings may be impacted by
future unrealized gains or losses associated with these instruments.
Ownership Costs
Ownership costs for the first three months of 2009 increased $1.5 million, primarily due to
interest associated with investment volume of $603.4 million over the last 12 months. The mix of
ownership costs was impacted by the purchase of $70.1 million of previously leased in assets in
2008.
Other Costs and Expenses
Maintenance expenses for the first three months of 2009 increased $1.0 million, primarily the
result of higher car volumes and increased repairs performed by railroads, partially offset by
the effect of foreign exchange rates. In North America, maintenance costs were $4.8 million higher
largely due to an increase in the number of wheelset replacements performed by railroads and higher
car volumes. In Europe, maintenance costs decreased $3.8 million primarily due to weakening
foreign currencies.
Specialty
Segment Summary
Specialty’s total asset base, including off balance sheet assets, was $641.3 million at March31, 2009, compared to $654.4 million at December 31, 2008, and $521.5 million at March 31, 2008.
Capital market volatility continues to create investment uncertainty for Specialty’s industrial
equipment customers, which has resulted in limited investment opportunities in 2009. Specialty
continues to pursue investment opportunities; however, realization of these opportunities will be
dependent on a number of factors, including market conditions and expected returns.
Components of Specialty’s operating results are outlined below (in millions):
Three Months
Ended March 31
2009
2008
Gross Income
Lease income
$
15.3
$
14.2
Asset remarketing income
9.7
9.9
Other income
1.1
1.7
Revenues
26.1
25.8
Affiliate earnings
10.4
16.4
36.5
42.2
Ownership Costs
Depreciation
4.9
4.0
Interest expense, net
5.8
4.1
Operating lease expense
0.4
0.5
11.1
8.6
Other Costs and Expenses
2.4
3.6
Segment profit
$
23.0
$
30.0
Specialty’s Portfolio Data
The following table summarizes information on the owned and managed Specialty portfolio (in
millions):
March 31
2009
2008
Net book value of owned assets (a)
$
641.3
$
521.5
Net book value of managed portfolio
274.1
361.2
(a)
Includes off balance sheet assets
Comparison of the First Three Months of 2009 to the First Three Months of 2008
Segment Profit
Specialty’s segment profit for the first three months of 2009 was $7.0 million lower than the
prior year, primarily due to lower marine affiliate earnings.
Gross Income
Lease income was $1.1 million higher than the prior year, primarily due to income from
investments in operating lease assets made in 2008. Share of affiliate earnings decreased $6.0
million from the prior year, primarily due lower charter rates achieved by marine vessels as a
result of the slowdown in the global economy.
Ownership Costs
Ownership costs were $2.5 million higher than the prior year, primarily due to an increase in
interest and depreciation expense related to operating lease assets acquired in 2008.
Other Costs and Expenses
The decrease in other costs and expenses in 2009 was primarily due to a $0.7 million favorable
difference in the fair value adjustment for warrants and lower costs for pooled barges.
The Great Lakes transportation market is severely depressed, primarily due to the downturn in
the steel industry. In response, ASC’s customers have significantly reduced anticipated freight
volume requirements for 2009. As a result, ASC will actively manage the fleet and deploy vessels
to efficiently meet customer requirements.
ASC’s fleet is largely inactive for the first three months of each year due to the winter
conditions on the Great Lakes. In the first three months of 2008, ASC carried 2.2 million net tons
of freight, largely due to prior year volume requirements completed in January. In 2009, ASC
carried only 0.2 million net tons, reflective of market conditions.
Components of ASC’s operating results are outlined below (in millions):
Three Months
Ended March 31
2009
2008
Gross Income
Marine operating revenues
$
1.1
$
14.1
Lease income
1.0
1.1
Other income
0.1
—
2.2
15.2
Ownership Costs
Interest expense, net
2.2
2.4
2.2
2.4
Other Costs and Expenses
Maintenance expense
0.1
0.6
Marine operating expense
0.7
11.5
Other
(5.6
)
—
(4.8
)
12.1
Segment profit
$
4.8
$
0.7
Comparison of the First Three Months of 2009 to the First Three Months of 2008
Segment Profit
ASC’s segment profit of $4.8 million was $4.1 million higher than prior year. The favorable
variance was primarily due to receipt of a litigation settlement, partially offset by lower income
due to significantly lower freight volume in 2009.
Gross Income
Gross income for the first three months of 2009 decreased $13.0 million from the prior year.
The decrease was primarily due to significantly lower freight volume in 2009 compared to 2008.
Ownership Costs
Ownership costs between the two periods were comparable.
Other Costs and Expenses
Other costs and expenses for the first three months of 2009 decreased $16.9 million from the
prior year. The variance was primarily due to substantially reduced shipping activity in 2009
compared to 2008 and the receipt of a $5.6 million litigation settlement.
Other
Other is comprised of unallocated interest expense, selling, general and administrative
expenses (“SG&A”), 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
2009
2008
Selling, general and administrative expenses
$
33.0
$
38.5
Unallocated interest expense, net
(0.1
)
(0.4
)
Other income and expense, including eliminations
(1.5
)
(0.3
)
Income taxes
11.9
14.9
SG&A, Unallocated Interest and Other
SG&A was $5.5 million lower than the prior year, primarily due to lower compensation expense
and weaker foreign exchange rates. Unallocated interest expense is the difference between actual
external interest expense incurred (net of interest income earned on certain cash balances) and
amounts allocated to the reporting segments in accordance with assigned leverage targets.
Unallocated interest expense in 2009 was comparable to the prior year. Other income and expense in
2009 was $1.2 million favorable to the prior year, primarily due to a reduction of a non-income tax
accrual.
Income Taxes
GATX’s effective tax rate was 30% for the three months ended March 31, 2009, compared to 22%
for the three months ended March 31, 2008. In 2008, the statute of limitations on a state income
tax position taken in a prior period expired, resulting in the recognition of previously
unrecognized tax benefits of $6.8 million. Additionally, in the current year, 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 both years,
GATX’s effective tax rate was for the first three months of 2009 and 2008 was 36% and 33%
respectively.
Cash Flow and Liquidity
Over the course of a full year, GATX expects to generate significant cash flow from a
combination of operating activities and investment portfolio proceeds. This cash flow is used to
service debt, pay dividends, and fund portfolio investments and capital additions. Cash flow from
operations and portfolio proceeds are impacted by changes in working capital and the timing of
asset dispositions. As a result, cash flow components will vary quarter to quarter.
Net cash provided by operating activities for the first three months of 2009 was $29.5
million, a decrease of $3.5 million from the prior year. The decrease was primarily due to changes
in working capital. Cash flow tends to be lower in the first quarter relative to subsequent
quarters due to the timing of certain payments.
Portfolio investments and capital additions for the first three months of 2009 totaled $79.3
million, an increase of $7.9 million from the prior year. Rail investments in 2009 were $70.5
million, while Specialty investments were $4.2 million. The timing of investments is dependent on
transaction opportunities and market conditions.
Portfolio proceeds totaled $27.2 million for the first three months of 2009, a decrease of
$38.9 million from the prior year. The decrease was primarily due to lower asset remarketing
proceeds.
Other proceeds of $32.6 million for the first three months of 2009 consisted of $27.3 million
received from the partial liquidation of a money market fund investment and $5.3 million from the
scrapping of railcars. Other proceeds for the first three months of 2008 consisted of $8.2 million
from the scrapping of railcars.
GATX also expects to meet debt, lease and dividend obligations through commercial paper
issuances, committed revolving credit facilities and the issuance of secured and unsecured debt.
GATX utilizes both domestic and international banks and capital markets.
Debt repayments for the first three months of 2009 were $9.4 million, consisting of scheduled
principal payments.
In the first three months of 2009, 1.7 million shares of GATX common stock were repurchased
for $30.2 million. In the first three months of 2008, 2.1 million shares were repurchased for
$76.5 million. These purchases were made under the Company’s $200 million share repurchase program
and as of March 31, 2009, $93.4 million of authorization remains.
GATX has a $550 million unsecured revolving credit facility that matures in May 2012. As of
March 31, 2009, availability under the facility was $422.5 million, with $115.2 million of
commercial paper issued and $12.3 million of letters of credit issued, both backed by the facility.
GATX also has a $100 million, 364-day, unsecured revolving credit facility, which matures on
January 8, 2010, and remains fully available.
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 $100
million facility and certain of GATX’s other bank term loans have the same covenants as the $550
million facility. The indentures for GATX’s public debt also contain restrictive covenants,
including limitations on loans, advances or investments in related parties and dividends it may
distribute. Some of the indentures also 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 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, 2009,
GATX was in compliance with all covenants and conditions of its credit facilities, bank term loans,
public debt indentures and European subsidiary loan 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”). As of March 31, 2009, GATX’s long-term unsecured debt was rated BBB+ by S&P
and Baa1 by Moody’s. GATX’s short-term unsecured debt was rated A-2 by S&P and P-2 by Moody’s.
GATX’s rating outlook from both agencies was stable.
The capital markets continue to exhibit significant volatility, however, GATX continues to
access the credit markets through term debt and commercial paper issuances, Subsequent to March31, 2009, GATX issued $300 million of five-year unsecured notes with a yield to investors of 9.0%.
Proceeds will be used to meet certain existing debt obligations and for general working capital
purposes.
At March 31, 2009, GATX’s unconditional obligations of $322.7 million were as follows (in
millions):
Payments Due by Period
Total
2009
2010
2011
2012
2013
Thereafter
Unconditional purchase obligations (a)
$
261.7
$
219.4
$
42.3
$
—
$
—
$
—
$
—
Loan from affiliate
61.0
54.7
6.3
—
—
—
—
$
322.7
$
274.1
$
48.6
$
$
$
$
(a)
Primarily contractual railcar commitments.
Critical Accounting Policies
There have been no changes to GATX’s critical accounting policies during the three months
ended March 31, 2009; refer to GATX’s Annual Report on Form 10-K for the fiscal year ended December31, 2008, for a summary of GATX’s policies.
Non-GAAP Financial Information
This report includes certain financial performance measures computed using non-Generally
Accepted Accounting Principles (“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 meant to
provide additional information and insight into the historical operating results and financial
position of the business. Management uses these performance measures to assist in analyzing GATX’s
underlying 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.
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.
Reconciliation of non-GAAP financial information (in millions):
March 31
2009
2008
Consolidated On Balance Sheet Assets
$
5,049.8
$
4,794.9
Off Balance Sheet Assets
992.4
1,171.6
Total On and Off Balance Sheet Assets
$
6,042.2
$
5,966.5
Shareholders’ Equity
$
1,069.7
$
1,136.0
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Since December 31, 2008, 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, 2008.
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 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 March 31, 2009, that
materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
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, 2008, 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, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) The following is a summary of stock repurchases for the quarter ended March 31, 2009. On
January 23, 2008, GATX’s Board of Directors authorized a $200 million share repurchase program.
Issuer Purchases of Equity Securities
(d)
Maximum Number
(or Approximate
(c)
Dollar Value) of
Total Number of Shares
Shares that May Yet
(a)
(b)
Purchased as Part of
Be Purchased Under
Total Number of
Average Price
Publicly Announced
the Plans or
Total
Shares Purchased
Paid per Share(1)
Plans or Programs
Programs (1)
March 1-31, 2009
1,712,639
$
17.59
1,712,639
$93.4 million
(1)
Does not include commissions paid to repurchase shares.
Item 4. Submission of Matters to a Vote of Security Holders
(a) GATX’s Annual Meeting of Stockholders was held on April 24, 2009.
(b) Matters voted upon at the meeting were:
Number of Shares Voted
For
Withheld
1. Election of Directors
Anne L. Arvia
46,190,428
397,771
Richard Fairbanks
43,983,834
2,604,365
Deborah M. Fretz
45,488,389
1,099,810
Ernst A. Häberli
45,470,940
1,117,259
Brian A. Kenney
43,757,500
2,830,699
Mark G. McGrath
45,488,586
1,099,613
James B. Ream
45,492,615
1,095,584
David S. Sutherland
45,497,895
1,090,304
Casey J. Sylla
45,481,728
1,106,471
2. Approval of the “performance-based”
compensation provisions of the GATX
44,617,644
For
Corporation 2004 Equity Incentive
Compensation Plan to comply with the
1,814,412
Against
requirements of Section 162(m) of the
Internal Revenue Code of 1986, as
amended
156,143
Abstentions
3. Ratification of appointment of Ernst
& Young LLP as
44,964,312
For
independent registered public accounting
firm for 2009
1,568,335
Against
55,552
Abstentions
There were no broker non-votes with respect to the election of the directors, the approval of
the “performance based” compensation provisions of the 2004 Equity Incentive Compensation Plan, or
the ratification of the appointment of independent auditors.
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.