<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
June 30, 2000 2-54754
---------------------------
GATX RAIL CORPORATION
INCORPORATED IN THE IRS EMPLOYER IDENTIFICATION NO.
STATE OF NEW YORK 36-2827991
500 WEST MONROE STREET
CHICAGO, IL 60661-3676
(312) 621-6200
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 X NO
--- ---
REGISTRANT HAD 1,000 SHARES OF COMMON STOCK OUTSTANDING (ALL OWNED BY
GATX CORPORATION) AS OF JULY 31, 2000.
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATX RAIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------------- --------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
GROSS INCOME
Lease and financing services $ 144.3 $ 141.1 $ 284.5 $ 278.7
Other income 7.9 6.5 14.5 13.0
--------------- --------------- --------------- ---------------
REVENUES 152.2 147.6 299.0 291.7
Share of affiliates' earnings .8 .9 1.9 1.8
--------------- --------------- --------------- ---------------
TOTAL GROSS INCOME 153.0 148.5 300.9 293.5
OWNERSHIP COSTS
Depreciation and amortization 24.5 24.9 50.3 49.3
Interest 16.4 14.5 32.7 28.1
Operating lease expense 31.8 26.9 61.1 53.8
--------------- --------------- --------------- ---------------
TOTAL OWNERSHIP COSTS 72.7 66.3 144.1 131.2
OTHER COSTS AND EXPENSES
Operating expenses 31.1 34.6 58.3 70.5
Selling, general and administrative 15.2 14.5 30.2 25.7
--------------- --------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 34.0 33.1 68.3 66.1
INCOME TAXES 12.9 12.3 25.4 24.5
--------------- --------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS 21.1 20.8 42.9 41.6
INCOME FROM DISCONTINUED OPERATIONS 7.7 6.1 13.5 14.6
--------------- --------------- --------------- ---------------
NET INCOME $ 28.8 $ 26.9 $ 56.4 $ 56.2
=============== =============== =============== ===============
</TABLE>
(1) The consolidated balance sheet at December 31, 1999 has been derived from
the audited financial statements at that date. All other consolidated
financial statements are unaudited but include all adjustments, consisting
only of normal recurring items, which management considers necessary for a
fair statement of the consolidated results of operations and financial
position for the respective periods. Operating results for the six months
ended June 30, 2000 are not necessarily indicative of the results that may
be achieved for the entire year ending December 31, 2000. Certain amounts
in 1999 have been reclassified to conform to the current presentation.
(2) Discontinued operations - Operating results for GATX Terminals Corp. are
shown net of taxes of $4.2, $4.5, $7.4, and $11.0, respectively, for the
four periods displayed.
1
<PAGE> 3
GATX RAIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
--------------- ----------------
ASSETS (Unaudited)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 63.7 $ 52.3
TRADE RECEIVABLES - NET 95.2 82.2
OPERATING LEASE ASSETS AND FACILITIES
Railcars and service facilities 2,627.6 2,698.7
Tank storage terminals and pipelines 1,478.9 1,221.7
--------------- ----------------
4,106.5 3,920.4
Less - Allowance for depreciation (1,895.2) (1,775.2)
--------------- ----------------
2,211.3 2,145.2
DUE FROM GATX CORPORATION 463.7 418.5
INVESTMENTS IN AFFILIATED COMPANIES 195.0 287.2
OTHER ASSETS 135.3 135.3
--------------- ----------------
$ 3,164.2 $ 3,120.7
=============== ================
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDER'S EQUITY
ACCOUNTS PAYABLE $ 154.5 $ 164.3
ACCRUED EXPENSES 54.0 60.2
DEBT
Short-term debt 257.6 248.0
Long-term debt:
Recourse 1,174.3 1,159.5
Nonrecourse 65.3 66.0
Capital lease obligations 75.5 81.9
--------------- ----------------
1,572.7 1,555.4
DEFERRED INCOME TAXES 398.0 360.9
OTHER DEFERRED ITEMS 214.7 223.7
--------------- ----------------
TOTAL LIABILITIES AND DEFERRED ITEMS 2,393.9 2,364.5
SHAREHOLDER'S EQUITY
Common stock - par value $1 per share, 1,000 shares authorized,
Issued and outstanding (owned by GATX Corporation) - -
Additional capital 335.0 335.0
Reinvested earnings 482.1 447.0
Accumulated other comprehensive loss (46.8) (25.8)
--------------- ----------------
TOTAL SHAREHOLDER'S EQUITY 770.3 756.2
--------------- ----------------
$ 3,164.2 $ 3,120.7
=============== ================
</TABLE>
2
<PAGE> 4
GATX RAIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 28.8 $ 26.9 $ 56.4 $ 56.2
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 38.5 36.0 78.2 71.6
Deferred income taxes 8.7 8.1 17.3 19.0
Other, including working capital (16.2) (15.7) (33.1) (41.7)
------------- ------------ ------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 59.8 55.3 118.8 105.1
INVESTING ACTIVITIES
Additions to operating lease assets and facilities:
Railcars and service facilities (143.3) (101.3) (273.3) (191.8)
Tank storage terminals and pipelines (6.6) (9.7) (70.5) (16.1)
Investments in affiliated companies - - (1.4) (26.6)
------------- ------------ ------------- ------------
Capital additions (149.9) (111.0) (345.2) (234.5)
Proceeds from other asset sales 288.4 5.6 306.4 49.2
------------- ------------ ------------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 138.5 (105.4) (38.8) (185.3)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 60.0 120.0 60.0 120.0
Repayment of long-term debt and other (44.7) (41.0) (46.7) (101.7)
Net (decrease) increase in short-term debt (210.6) 49.8 (16.3) 169.7
Other receipts (advances) 7.3 (43.9) 7.3 (43.9)
Repayment of capital lease obligations - - (6.4) (5.8)
Cash dividends paid to GATX Corporation (9.1) (12.0) (21.3) (24.7)
Net decrease (increase) in amount due from GATX Corporation .8 (18.1) (45.2) (26.5)
------------- ------------ ------------- ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (196.3) 54.8 (68.6) 87.1
------------- ------------ ------------- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 2.0 $ 4.7 $ 11.4 $ 6.9
============= ============ ============= ============
</TABLE>
3
<PAGE> 5
GATX RAIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net income $ 28.8 $ 26.9 $ 56.4 $ 56.2
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment (10.3) 3.9 (21.0) 2.2
------------- ------------- ------------ -------------
COMPREHENSIVE INCOME $ 18.5 $ 30.8 $ 35.4 $ 58.4
============= ============= ============ =============
</TABLE>
4
<PAGE> 6
GATX RAIL CORPORATION AND SUBSIDIARIES
FINANCIAL DATA OF BUSINESS SEGMENTS FOR CONTINUING OPERATIONS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
GATX RAIL OTHER TOTAL
------------ ----------- -----------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 2000
--------------------------------
PROFITABILITY
Revenues $ 144.3 $ 7.9 $ 152.2
Share of affiliates' earnings .8 - .8
------------ ----------- -----------
Gross income 145.1 7.9 153.0
Interest expense 13.8 2.6 16.4
Depreciation and amortization 24.5 - 24.5
Income from continuing operations before taxes 29.0 5.0 34.0
Income from continuing operations 17.9 3.2 21.1
FINANCIAL POSITION
Investments in affiliated companies 92.8 - 92.8
Identifiable assets 1,624.0 472.9 2,096.9
ITEMS AFFECTING CASH FLOW
Net cash provided by (used in) operating
activities 46.1 (2.1) 44.0
Capital additions 143.3 - 143.3
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------
PROFITABILITY
Revenues $ 141.1 $ 6.5 $ 147.6
Share of affiliates' earnings .9 - .9
------------ ----------- -----------
Gross income 142.0 6.5 148.5
Interest expense 13.1 1.4 14.5
Depreciation and amortization 24.9 - 24.9
Income from continuing operations before taxes 27.9 5.2 33.1
Income from continuing operations 17.5 3.3 20.8
FINANCIAL POSITION AT DECEMBER 31, 1999
Investments in affiliated companies 91.3 - 91.3
Identifiable assets 1,693.8 429.0 2,122.8
ITEMS AFFECTING CASH FLOW
Net cash provided by operating activities 45.3 .3 45.6
Capital additions 101.3 - 101.3
</TABLE>
5
<PAGE> 7
GATX RAIL CORPORATION AND SUBSIDIARIES
FINANCIAL DATA OF BUSINESS SEGMENTS FOR CONTINUING OPERATIONS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
GATX RAIL OTHER TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 2000
------------------------------
PROFITABILITY
Revenues $ 284.5 $ 14.5 $ 299.0
Share of affiliates' earnings 1.9 - 1.9
------------ ----------- ------------
Gross income 286.4 14.5 300.9
Interest expense 28.5 4.2 32.7
Depreciation and amortization 50.3 - 50.3
Income from continuing operations before taxes 58.3 10.0 68.3
Income from continuing operations 36.4 6.5 42.9
FINANCIAL POSITION
Investments in affiliated companies 92.8 - 92.8
Identifiable assets 1,624.0 472.9 2,096.9
ITEMS AFFECTING CASH FLOW
Net cash provided by operating
activities 99.4 2.3 101.7
Capital additions 274.7 - 274.7
SIX MONTHS ENDED JUNE 30, 1999
------------------------------
PROFITABILITY
Revenues $ 278.7 $ 13.0 $ 291.7
Share of affiliates' earnings 1.8 - 1.8
------------ ----------- ------------
Gross income 280.5 13.0 293.5
Interest expense 25.5 2.6 28.1
Depreciation and amortization 49.3 - 49.3
Income from continuing operations before taxes 55.8 10.3 66.1
Income from continuing operations 35.0 6.6 41.6
FINANCIAL POSITION AT DECEMBER 31, 1999
Investments in affiliated companies 91.3 - 91.3
Identifiable assets 1,693.8 429.0 2,122.8
ITEMS AFFECTING CASH FLOW
Net cash provided by operating activities 87.4 8.3 95.7
Capital additions 203.5 - 203.5
</TABLE>
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF FIRST SIX MONTHS OF 2000
TO FIRST SIX MONTHS OF 1999
GATX Rail Corporation's (GRC) net income for the first six months of 2000 was
$56 million which was comparable to the first six months of 1999.
GRC is a wholly owned subsidiary of GATX Corporation. On July 11, 2000, GATX
Corporation announced its intention to sell GATX Terminals Corporation
(Terminals), a segment of GATX Rail Corporation. As a result of this action,
operating results for Terminals have been segregated as discontinued operations
in the accompanying consolidated statements of income. Prior year results of
operations have been restated to reflect the current year's presentation of
Terminals as a discontinued operation.
RESULTS OF CONTINUING OPERATIONS
GRC's gross income from continuing operations of $301 million was $7 million
higher than the prior year. Net income from continuing operations for the first
six months of 2000 was $43 million compared to $42 million for the first six
months of 1999.
GATX RAIL
GATX Rail's gross income for the first six months of 2000 increased slightly
over the prior year period due to a larger active fleet. Approximately 85,200
tank and freight cars were on lease throughout North America at June 30, 2000,
compared to 82,300 railcars a year ago. The revenue increase associated with a
larger active fleet was partially offset by lower average rental rates.
Growth in the active domestic fleet and rental rates has been slowed by industry
factors. Consolidation among major chemical customers has led to fleet
rationalization, and railroads have improved efficiency following a period of
merger-related congestion. These factors are expected to continue affecting car
demand and lease rates during the second half of the year. Due to the current
market conditions, GATX Rail's utilization decreased to 93% as of June 30, 2000
from 94% at the end of prior year period, reflecting an increase in the number
of idle railcars.
The increase in net income for the six-month period was driven by a larger
active fleet and lower operating and SG&A costs offset by the slower
introduction into the market of recently acquired new railcars and more
competitive lease rates.
OTHER
All financing activities considered non-operational to Rail have been isolated
in the Other segment. Net income of $7 million is comparable to the prior year
period.
7
<PAGE> 9
RESULTS OF DISCONTINUED OPERATIONS
On July 11, 2000, GATX Corporation announced its intention to sell Terminals.
Therefore, the segment is no longer considered to be an ongoing operation and
its results have been segregated as discontinued operations in the accompanying
consolidated income statements.
Operating results for the first six months of 2000 were $14 million, down $1
million from the prior year period. Strong results in the domestic terminal and
pipeline business were offset by a nonrecurring gain recognized last year on the
sale of rights along the Central Florida Pipeline and lower affiliate
contribution from Olympic Pipeline Company (Olympic).
Terminals owns 25.1% of the common shares of Olympic. On June 10, 1999, a
pipeline rupture and explosion occurred on one of the pipelines owned by
Olympic. The affected section of the pipeline is not expected to resume
operations until next year. Several lawsuits have been filed against Olympic and
its operator. Subsequent to the end of the quarter, Terminals entered into an
agreement to sell its interest in Olympic. The consummation of the transaction
is subject to several contingencies, including the expiration of the
Hart-Scott-Rodino waiting period.
CASH FLOW AND LIQUIDITY
Net cash provided by operating activities for the first six months of 2000 was
$119 million, a $14 million increase from last year's period, due to higher
depreciation being taken in the current year by GATX Rail and the timing of
working capital requirements.
Proceeds from other asset sales of $306 million increased $257 million from last
year's period and includes the proceeds from the sale-leaseback of railcars at
GATX Rail.
Capital additions for the first six months of 2000 totaled $345 million, an
increase of $111 million from the first six months of 1999. GATX Rail invested
$275 million, a $71 million increase from the prior year period, in its railcar
fleet, facilities, and international affiliates. Railcar additions at GATX Rail
are not anticipated to continue at the same rate for the remaining six-month
period of 2000 in response to current market conditions. Internally generated
cash flow and GATX's external sources will be used to fund future capital
additions.
GRC, through its subsidiaries, had unused committed lines of credit of $243
million at June 30, 2000. GRC issued $30 million of medium-term notes and $30
million of long-term money market lines during the first six months of 2000.
Additional financing needs were met by cash flow from operations, short-term
debt and proceeds from asset sales, which included two sale-leaseback
financings. GRC has a $650 million shelf registration of which $477 million has
been issued through June 30, 2000.
OTHER MATTERS
The Financial Accounting Standards Board issued Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities (SFAS No. 133) in June 1998.
This new accounting standard will require that all derivatives be recorded on
the balance sheet at fair value. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in the fair value of the hedged assets, liabilities,
or firm commitments
8
<PAGE> 10
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. GRC utilizes
fundamental derivatives to hedge changes in interest rates and foreign
currencies. In July 1999, Statement No. 137 was issued which deferred the
effective date of SFAS No. 133 for one year. SFAS No. 133 is now required to be
adopted in years beginning after June 15, 2000. In June 2000, Statement No. 138
was issued which amended the accounting and reporting standards of SFAS No. 133
for certain derivative instruments and hedging activities. Management is
currently assessing the effect that the adoption of SFAS No. 133 will have on
the Company's financial position, results of operations, and cash flows. GRC
expects to adopt SFAS No. 133, as amended, effective January 1, 2001.
Management's discussion includes statements that may constitute forward-looking
statements made pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995. This information may involve risks and
uncertainties that could cause actual results to differ materially from the
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. These risks and
uncertainties include, but are not limited to, unanticipated changes in the
markets served by GRC such as the rail, petroleum and chemical industries.
9
<PAGE> 11
COMPARISON OF SECOND QUARTER 2000
TO SECOND QUARTER 1999
For the second quarter of 2000 net income was $29 million as compared to $27
million for the second quarter of 1999. Income from continuing operations of $21
million for the second quarter of 2000 was comparable to the second quarter of
1999.
Increases and decreases in gross income and net income between second quarter
2000 and second quarter 1999 for all segments were principally due to the same
reasons as discussed previously in relation to the six-month period.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Calnev Pipe Line Company, a wholly owned subsidiary of GATX Terminals
Corporation, was served with ten Notices of Violation by the Mojave Desert Air
Quality Management District with respect to alleged violations of the California
Health and Safety Code relating to air quality compliance at the terminal
located in Daggett, California. The civil penalties assessed under the Notices
of Violation are less than $300,000 in the aggregate.
GRC and its subsidiaries are engaged in various matters of litigation including
but not limited to those matters described above, and have a number of
unresolved claims pending, including proceedings under governmental laws and
regulations related to environmental matters. While the amounts claimed are
substantial and the ultimate liability with respect to such litigation and
claims cannot be determined at this time, it is the opinion of management that
damages, if any, required to be paid by GRC and its subsidiaries in the
discharge of such liability are not likely to be material to GRC's consolidated
financial position or results of operations.
10
<PAGE> 12
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE
----
<S> <C>
a) 12 Statement regarding computation of earnings to fixed charges. 12
27 Financial Data Schedule for GRC for the quarter ended June 30, 2000.
Submitted to the SEC along with the electronic submission of this
Quarterly Report on Form 10-Q.
Any instrument defining the rights of security holders with respect
to nonregistered long-term debt not being filed on the basis that the
amount of securities authorized does not exceed 10 percent of the
total assets of the company and subsidiaries on a consolidated basis
will be furnished to the Commission upon request.
b) Form 8-K filed on July 12, 2000 reporting GATX Corporation's intention
to sell GATX Terminals Corporation, its wholly owned subsidiary
specializing in the storage and distribution of bulk petroleum and
chemical products.
</TABLE>
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 RAIL CORPORATION
(Registrant)
/s/ Donald J. Schaffer
---------------------------------------------
Donald J. Schaffer
Vice President, Finance
and Chief Financial Officer
Date: August 14, 2000
11
