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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
September 30, 2000 1-2328
-------------------------
GATX CORPORATION
Incorporated in the IRS Employer Identification No.
State of New York 36-1124040
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 47,719,104 shares of common stock outstanding as of
October 31, 2000.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------- ----------------------
2000 1999 2000 1999
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
GROSS INCOME
Lease, interest and financing services $ 347.4 $ 300.6 $ 955.1 $ 836.8
Other income (expense) .2 (5.4) (2.1) 63.3
-------- -------- ---------- --------
REVENUES 347.6 295.2 953.0 900.1
Share of affiliates' earnings 16.7 18.9 62.8 48.2
-------- -------- ---------- --------
TOTAL GROSS INCOME 364.3 314.1 1,015.8 948.3
OWNERSHIP COSTS
Depreciation and amortization 81.2 66.0 240.0 179.4
Interest 62.7 46.0 176.1 132.4
Operating lease expense 47.4 35.6 130.1 111.2
-------- -------- ---------- --------
TOTAL OWNERSHIP COSTS 191.3 147.6 546.2 423.0
OTHER COSTS AND EXPENSES
Operating expenses 52.9 55.2 135.7 207.2
Selling, general and administrative 54.8 47.6 147.4 144.8
Provision for possible losses 4.6 2.8 8.6 8.3
-------- -------- ---------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 60.7 60.9 177.9 165.0
INCOME TAXES 23.1 24.5 70.3 64.4
-------- -------- ---------- --------
INCOME FROM CONTINUING
OPERATIONS 37.6 36.4 107.6 100.6
DISCONTINUED OPERATIONS (2):
Operating results 7.5 5.8 14.9 18.9
Gain on sale of portion of segment - - 4.7 -
-------- -------- ---------- --------
NET INCOME $ 45.1 $ 42.2 $ 127.2 $ 119.5
======== ======== ========== ========
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------- -----------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
PER COMMON SHARE
Basic net income per share
Income from continuing operations $ .79 $ .74 $ 2.24 $ 2.04
Income from discontinued operations .16 .11 .41 .38
------- ------- -------- --------
Total $ .95 $ .85 $ 2.65 $ 2.42
Diluted net income per share
Income from continuing operations $ .78 $ .72 $ 2.21 $ 1.99
Income from discontinued operations .15 .11 .40 .37
------- ------- -------- --------
Total $ .93 $ .83 $ 2.61 $ 2.36
Dividends paid $ .30 $ .275 $ .90 $ .825
</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 nine months
ended September 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 the former Integrated
Solutions Group segment are shown net of taxes of $4.6, $5.0, $9.2, and
$15.9 million, respectively, for the four periods displayed. Gain on sale
reflects the sale of 81% of GATX Logistics, Inc. and is stated net of
income tax benefit of $5.7 million.
3
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GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
SEPTEMBER 30 DECEMBER 31
2000 1999
------------ -----------
(Unaudited)
ASSETS
CASH AND CASH EQUIVALENTS $ 118.0 $ 102.5
RECEIVABLES
Trade accounts 117.0 153.6
Finance leases 725.7 645.7
Secured loans 565.7 358.0
Less - Allowance for possible losses (113.0) (115.7)
---------- ----------
1,295.4 1,041.6
OPERATING LEASE ASSETS AND FACILITIES
Railcars and service facilities 2,687.2 2,698.7
Tank storage terminals and pipelines 1,465.5 1,221.7
Operating lease investments and other 1,455.1 1,404.5
---------- ----------
5,607.8 5,324.9
Less - Allowance for depreciation (2,107.1) (2,042.9)
---------- ----------
3,500.7 3,282.0
INVESTMENTS IN AFFILIATED COMPANIES 982.5 957.3
OTHER ASSETS 485.4 483.4
---------- ----------
$ 6,382.0 $ 5,866.8
========== ==========
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SEPTEMBER 30 DECEMBER 31
2000 1999
------------ -----------
(Unaudited)
LIABILITIES, DEFERRED ITEMS
AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 315.5 $ 372.3
ACCRUED EXPENSES 86.2 65.8
DEBT
Short-term 160.7 377.4
Long-term:
Recourse 3,391.9 2,785.7
Nonrecourse 510.7 463.8
Capital lease obligations 165.3 183.1
---------- ----------
4,228.6 3,810.0
DEFERRED INCOME TAXES 556.6 457.2
OTHER DEFERRED ITEMS 319.1 325.5
---------- ----------
TOTAL LIABILITIES AND DEFERRED ITEMS 5,506.0 5,030.8
SHAREHOLDERS' EQUITY
Preferred stock - -
Common stock 34.8 34.5
Additional capital 350.4 338.7
Reinvested earnings 627.2 543.0
Accumulated other comprehensive (loss) income (7.1) 1.2
---------- ----------
1,005.3 917.4
Less - Cost of common shares in treasury (129.3) (81.4)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 876.0 836.0
---------- ----------
$ 6,382.0 $ 5,866.8
========== ==========
5
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GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------- ------------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 45.1 $ 42.2 $ 127.2 $ 119.5
Adjustments to reconcile net income
to net cash provided by operating activities:
Realized gains on remarketing of leased equipment (20.2) (18.4) (40.0) (65.3)
Depreciation and amortization 94.4 79.6 285.4 220.3
Provision for possible losses 4.6 2.9 9.0 8.4
Deferred income taxes 31.4 14.1 74.6 57.4
Net change in trade receivables, inventories,
accounts payable and accrued expenses 8.4 17.9 (29.1) (44.6)
Other (41.8) (17.6) (100.5) (48.0)
-------- -------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 121.9 120.7 326.6 247.7
INVESTING ACTIVITIES
Additions to operating lease assets and facilities (78.1) (103.3) (440.9) (320.5)
Portfolio lease investments, net of nonrecourse financing
for leveraged leases (121.0) (250.5) (412.6) (434.2)
Secured loans extended (122.0) (73.1) (338.5) (204.7)
Investments in affiliated companies (42.3) (40.3) (170.0) (136.1)
Other investments and progress payments (9.1) (17.2) (114.7) (41.1)
-------- -------- ---------- ----------
Capital additions and portfolio investments (372.5) (484.4) (1,476.7) (1,136.6)
Portfolio proceeds:
From remarketing of leased equipment 61.1 31.7 106.2 174.5
From return of investment 111.0 106.3 286.3 226.2
-------- -------- ---------- ----------
Total portfolio proceeds 172.1 138.0 392.5 400.7
Proceeds from other asset sales 23.9 199.8 405.1 251.8
-------- -------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (176.5) (146.6) (679.1) (484.1)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 630.0 67.2 1,410.8 373.9
Repayment of long-term debt (117.3) (79.9) (728.9) (350.0)
Net (decrease) increase in short-term debt (431.3) 72.7 (227.6) 310.6
Other receipts (advances) .6 36.0 7.9 (7.9)
Repayment of capital lease obligations (5.3) (2.0) (15.4) (12.8)
Issuance (repurchase) of common stock and other 5.4 (6.7) (35.8) (1.5)
Cash dividends (14.3) (13.7) (43.0) (40.9)
-------- -------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 67.8 73.6 368.0 271.4
-------- -------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS
$ 13.2 $ 47.7 $ 15.5 $ 35.0
======== ======== ========== ==========
</TABLE>
6
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GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ --------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 45.1 $ 42.2 $ 127.2 $ 119.5
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (10.3) 4.6 (30.5) 6.4
Unrealized gain (loss) on securities, net of
reclassification adjustments (a) 12.8 (4.8) 22.2 5.8
------- ------- -------- --------
Other comprehensive income (loss) 2.5 (.2) (8.3) 12.2
------- ------- -------- --------
COMPREHENSIVE INCOME $ 47.6 $ 42.0 $ 118.9 $ 131.7
======= ======= ======== ========
(a) Reclassification adjustments:
Unrealized gain (loss) on securities $ 20.0 $ (.9) $ 43.1 $ 14.6
Less - Reclassification adjustment for gains
realized included in net income (7.2) (3.9) (20.9) (8.8)
------- ------- -------- --------
Net unrealized gain (loss) on securities $ 12.8 $ (4.8) $ 22.2 $ 5.8
======= ======= ======== ========
</TABLE>
7
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GATX CORPORATION AND SUBSIDIARIES
FINANCIAL DATA OF BUSINESS SEGMENTS FOR CONTINUING OPERATIONS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
FINANCIAL CORPORATE
GATX RAIL SERVICES AND OTHER INTERSEGMENT TOTAL
--------- -------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------
PROFITABILITY
Revenues $ 144.5 $ 202.9 $ .6 $ (.4) $ 347.6
Share of affiliates' earnings .7 16.0 - - 16.7
----------------------------------------------------------------------------
Gross income 145.2 218.9 .6 (.4) 364.3
Interest expense 13.0 47.8 1.6 .3 62.7
Depreciation and amortization 24.2 56.2 .3 .5 81.2
Income (loss) from continuing
operations before taxes 25.6 42.8 (7.7) - 60.7
Income (loss) from continuing 15.9 26.1 (4.4) - 37.6
operations
FINANCIAL POSITION
Debt 788.9 2,762.4 72.0 (111.2) 3,512.1
Equity 341.9 457.3 (27.5) (5.1) 766.6
Investments in affiliated companies 89.6 805.8 .4 - 895.8
Identifiable assets 1,665.6 3,770.9 50.3 (174.2) 5,312.6
ITEMS AFFECTING CASH FLOW
Net cash provided by
operating activities 17.6 76.2 9.9 - 103.7
Portfolio proceeds - 172.1 - - 172.1
----------------------------------------------------------------------------
Total cash provided 17.6 248.3 9.9 - 275.8
Capital additions and portfolio
investments 71.1 293.4 .2 - 364.7
--------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------
PROFITABILITY
Revenues $ 148.2 $ 148.3 $ .2 $ (1.5) $ 295.2
Share of affiliates' earnings .6 18.3 - - 18.9
----------------------------------------------------------------------------
Gross income 148.8 166.6 .2 (1.5) 314.1
Interest expense 14.0 30.7 1.8 (.5) 46.0
Depreciation and amortization 24.6 40.6 .3 .5 66.0
Income (loss) from continuing
operations before taxes 32.8 33.7 (5.5) (.1) 60.9
Income (loss) from continuing 20.0 20.1 (3.6) (.1) 36.4
operations
FINANCIAL POSITION AT DECEMBER 31, 1999
Debt 831.0 2,255.3 67.6 (8.8) 3,145.1
Equity 327.5 362.8 (65.9) (5.0) 619.4
Investments in affiliated companies 91.3 665.5 .7 - 757.5
Identifiable assets 1,693.8 3,088.9 29.8 (112.1) 4,700.4
ITEMS AFFECTING CASH FLOW
Net cash provided by
operating activities 20.1 67.2 10.3 - 97.6
Portfolio proceeds - 138.0 - - 138.0
----------------------------------------------------------------------------
Total cash provided 20.1 205.2 10.3 - 235.6
Capital additions and portfolio
investments 94.4 371.6 (.1) - 465.9
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
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GATX CORPORATION AND SUBSIDIARIES
FINANCIAL DATA OF BUSINESS SEGMENTS FOR CONTINUING OPERATIONS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
FINANCIAL CORPORATE
GATX RAIL SERVICES AND OTHER INTERSEGMENT TOTAL
--------- -------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------
PROFITABILITY
Revenues $ 429.0 $ 526.1 $ 1.2 $ (3.3) $ 953.0
Share of affiliates' earnings 2.6 60.2 - - 62.8
----------------------------------------------------------------------------
Gross income 431.6 586.3 1.2 (3.3) 1,015.8
Interest expense 41.5 129.6 5.7 (.7) 176.1
Depreciation and amortization 74.5 162.6 1.1 1.8 240.0
Income (loss) from continuing
operations before taxes 83.9 115.6 (21.5) (.1) 177.9
Income (loss) from continuing 52.3 70.1 (14.7) (.1) 107.6
operations
FINANCIAL POSITION
Debt 788.9 2,762.4 72.0 (111.2) 3,512.1
Equity 341.9 457.3 (27.5) (5.1) 766.6
Investments in affiliated companies 89.6 805.8 .4 - 895.8
Identifiable assets 1,665.6 3,770.9 50.3 (174.2) 5,312.6
ITEMS AFFECTING CASH FLOW
Net cash provided by (used in)
operating activities 116.8 190.5 (10.5) - 296.8
Portfolio proceeds - 392.5 - - 392.5
----------------------------------------------------------------------------
Total cash provided (used) 116.8 583.0 (10.5) - 689.3
Capital additions and portfolio
investments 345.8 1,041.1 .4 - 1,387.3
--------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------
PROFITABILITY
Revenues $ 426.9 $ 477.4 $ .9 $ (5.1) $ 900.1
Share of affiliates' earnings 2.4 45.8 - - 48.2
----------------------------------------------------------------------------
Gross income 429.3 523.2 .9 (5.1) 948.3
Interest expense 39.5 89.0 5.2 (1.3) 132.4
Depreciation and amortization 73.9 103.1 .9 1.5 179.4
Income (loss) from continuing
operations before taxes 88.6 95.5 (17.8) (1.3) 165.0
Income (loss) from continuing 55.0 58.5 (11.9) (1.0) 100.6
operations
FINANCIAL POSITION AT DECEMBER 31, 1999
Debt 831.0 2,255.3 67.6 (8.8) 3,145.1
Equity 327.5 362.8 (65.9) (5.0) 619.4
Investments in affiliated companies 91.3 665.5 .7 - 757.5
Identifiable assets 1,693.8 3,088.9 29.8 (112.1) 4,700.4
ITEMS AFFECTING CASH FLOW
Net cash provided by (used in)
operating activities 107.5 116.8 (14.2) - 210.1
Portfolio proceeds - 400.7 - - 400.7
----------------------------------------------------------------------------
Total cash provided (used) 107.5 517.5 (14.2) - 610.8
Capital additions and portfolio
investments 297.9 783.8 1.2 - 1,082.9
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF FIRST NINE MONTHS OF 2000
TO FIRST NINE MONTHS OF 1999
GATX Corporation's net income for the first nine months of 2000 was $127
million, a 6% increase from the $120 million for the same period in 1999.
Earnings per share on a diluted basis increased 11% to $2.61 from $2.36 for the
1999 period.
On July 11, 2000, GATX Corporation announced its intention to sell GATX
Terminals Corporation, a wholly owned subsidiary of GATX Rail Corporation and a
member of the Integrated Solutions Group. Additionally, in the second quarter
GATX Corporation divested 81% of GATX Logistics, Inc., also a member of the
Integrated Solutions Group. As a result of these actions, operating results for
the Integrated Solutions Group have been segregated as discontinued operations
in the consolidated statements of income. Results from discontinued operations
for the nine-month period include a $5 million after-tax gain related to the
sale of GATX Logistics, Inc. Prior year results of operations have been restated
to reflect the current year's presentation of the Integrated Solutions Group as
a discontinued operation.
RESULTS OF CONTINUING OPERATIONS
GATX Corporation's gross income from continuing operations of $1,016 million was
$68 million higher than the prior year. Net income from continuing operations
for the first nine months of 2000 was $108 million compared to $101 million for
the first nine months of 1999. Diluted earnings per share from continuing
operations increased 11% to $2.21 from $1.99 for the prior year period.
GATX RAIL
GATX Rail's gross income for the first nine months of 2000 increased slightly
over the prior year period as revenue generated by a larger active fleet more
than offset the absence of last year's gain associated with the sale of 1,700
grain cars. Approximately 85,400 tank and freight cars were on lease throughout
North America at September 30, 2000, compared to 81,900 railcars a year ago. The
average rental rate remained essentially flat with the prior year.
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 remainder of the year. Due to the current
market conditions, GATX Rail's utilization decreased to 93% as of September 30,
2000 from 95% at the end of prior year period, reflecting an increase in the
number of idle railcars. Correspondingly, fleet growth was scaled back in the
third quarter and for the remainder of the year.
In addition to the challenging market conditions, GATX Rail is addressing an
important issue with respect to its domestic service network. Employees at its
four domestic service centers, represented by the United Steelworkers of
America, have rejected the terms of a company-proposed labor contract. The
company's proposal is designed to improve the long-term competitive position of
GATX Rail's service centers. As a result of the uncertainty this situation has
caused, the amount of work at our service centers has declined and the use of
third party contract shops has increased to ensure seamless customer service.
The service centers continue to remain open and operational, but with smaller
staffs given the lower volume of work. While this has been an
10
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effective service alternative, GATX Rail will incur abnormally high maintenance
expenses during the fourth quarter absent the prompt signing of a new contract.
Prior year net income included $3 million primarily related to a gain on the
sale of 1,700 grain cars partially offset by certain incremental operating
expenses. Excluding this gain, net income was up slightly from the prior year as
revenues from the larger active fleet and lower operating expenses were
partially offset by higher SG&A and ownership costs.
FINANCIAL SERVICES
Financial Services' gross income increased 12% from the prior year period.
Comparisons between periods are affected by the sale of the value-added
technology equipment sales and service business (VAR) in June 1999. Excluding
VAR, gross income increased 29% over the prior year primarily due to increases
in lease income generated from a larger lease portfolio and the share of
affiliates' earnings. The increase in lease income was predominately driven by
growth in the technology portfolio. Asset remarketing income decreased $23
million from the prior year period but was essentially offset by a $20 million
increase in gains from stock sales. Asset remarketing income includes both gains
from asset sales and residual sharing fees. Asset remarketing income and gains
from the sale of stock do not occur evenly from period to period.
Net income of $70 million increased 20% from last year as a result of higher
lease income and increases in share of affiliates' earnings and gains from the
sale of stock. These increases were partially offset by higher ownership costs
and SG&A expenses associated with increased investment and overall business
activity.
CORPORATE AND OTHER
Corporate and Other net expense was $15 million for the first nine months of
2000 compared with $13 million for the prior year period. The increase in net
expense is largely due to lower insurance proceeds partially offset by a
favorable settlement of an environmental claim.
RESULTS OF DISCONTINUED OPERATIONS
The Integrated Solutions Group segment is comprised of GATX Terminals
Corporation (Terminals), GATX Logistics, Inc. (Logistics), and minor business
development efforts. On May 31, 2000, GATX Corporation sold 81% of its interest
in Logistics. In addition, on July 11, 2000 GATX Corporation announced its
intention to sell Terminals. As a result of these actions, the Integrated
Solutions Group segment is no longer considered to be an ongoing operation, and
its results have been segregated as discontinued operations in the accompanying
consolidated statements of income.
Operating results for the first nine months of 2000 were $15 million, down $4
million from the prior year period. Strong results in the domestic terminal and
pipeline business were offset largely by losses incurred in the now sold
warehousing business, the absence of a nonrecurring gain recognized last year on
the sale of rights along the Central Florida Pipeline, higher business
development costs, and lower affiliate contribution primarily from Olympic
Pipeline Company (Olympic).
The sale of 81% of GATX's interest in Logistics generated a $5 million gain
primarily related to tax benefits.
Terminals owned 25.1% of the common shares of Olympic Pipeline Company. 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. On September 20, 2000, Terminals sold its entire 25.1% ownership
of Olympic's common shares to BP's Pipelines Business Unit.
11
<PAGE> 12
CASH FLOW AND LIQUIDITY
Net cash provided by operating activities for the first nine months of 2000 was
$327 million, a $79 million increase from last year's period, due to higher
depreciation taken in the current year, the timing of working capital
requirements and lower asset remarketing gains. All cash received from asset
dispositions, including gain and return of principal, is included in investing
activities as portfolio proceeds or other asset sales. Portfolio proceeds
decreased $8 million from the comparable 1999 period. The decrease in proceeds
from the remarketing of leased equipment was partially offset by an increase in
the return of investment, including an increase in loan principal receipts and
the return of capital distributions from joint venture investments. Proceeds
from other asset sales of $405 million increased $153 million from last year's
period and include the proceeds from the sale-leaseback of railcars at GATX Rail
and the sale of GATX Logistics, Inc.
Capital additions and portfolio investments for the first nine months of 2000
totaled $1.5 billion, an increase of $340 million from the first nine months of
1999. GATX Rail invested $346 million, a $48 million increase from the
nine-month period of 1999, in its railcar fleet, facilities, and international
affiliates. This increase reflects an investment in approximately 900 additional
railcars as compared with the prior year period. Portfolio investments at
Financial Services of $1.0 billion were $257 million higher than the prior year
and primarily reflect investments in air and technology assets and joint
ventures. Future capital additions and portfolio investments are dependent on
market conditions and opportunities to acquire desirable assets. GATX Rail has
scaled back fleet growth given the current market conditions and, as a result,
railcar additions are not anticipated to continue at the same rate for the
remainder of 2000. Internally generated cash flow and GATX's external financing
sources will be used to fund future capital additions and portfolio investments.
Cash provided by financing activities increased $97 million to fund the high
level of current period capital additions and portfolio investments. During the
nine-month period, $1.4 billion of long-term debt was issued and $729 million of
long-term debt obligations were repaid. Short-term debt decreased $228 million
from the 1999 period. The decrease in short-term debt and increase in long-term
debt primarily reflects activity at Financial Services. During 2000, GATX used
$48 million to repurchase 1.4 million common shares to effectively complete the
company's stock repurchase program announced in 1999.
GATX, through its subsidiaries, had unused committed lines of credit of $619
million at September 30, 2000. GATX Rail Corporation (GRC) issued $30 million of
medium-term notes and $130 million of other long-term debt during the first nine
months of 2000. GATX Capital completed a $350 million debt offering and issued
$250 million of medium-term notes and $651 million in nonrecourse debt during
the first nine months of 2000. Additional financing needs were met by cash flow
from operations, portfolio proceeds, proceeds from other asset sales that
included two sale-leaseback financings and short-term debt. GRC has a $650
million shelf registration for pass-through certificates and debt securities of
which $477 million has been issued through September 30, 2000. GATX Capital has
a shelf registration for $1.015 billion of which $600 million has been issued.
Other Matters
Effective January 1, 2001, GATX will adopt Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an amendment of FASB Statement No. 133. SFAS No. 133, as
amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging instruments. The statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Derivatives that
are not hedges must
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<PAGE> 13
be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in fair value of the derivative
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments 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. GATX believes that the adoption of SFAS No. 133, as
amended, will have a material impact on the accounting for stock warrants.
GATX Capital frequently obtains stocks and warrants from non-public, venture
capital-backed companies in connection with its financing activities. Under
current accounting guidance, these items are generally accounted for as
available-for-sale securities in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," with changes in fair value
recorded as unrealized gain or loss in other comprehensive income in the equity
section of the balance sheet. Upon adoption of SFAS No. 133, as amended, these
warrants must be accounted for as derivatives, with prospective changes in fair
value recorded in current earnings.
As of September 30, 2000, a total of $57 million of unrealized gains, net of
tax, were recorded in other comprehensive income. Of this amount, $32 million,
net of tax from warrants is subject to SFAS No. 133 while the remaining $25
million, net of tax, representing stock held in the available-for-sale
securities portfolio would continue to be accounted for in accordance with SFAS
No. 115.
Apart from warrants, the GATX uses interest rate and currency swap agreements,
and forward sale agreements, as hedges that manage its exposure to interest rate
and currency exchange rate risk on existing and anticipated transactions. To
qualify for hedge accounting under current accounting guidance, the derivative
instrument must be identified with and reduce the risk arising from a specific
transaction. Interest income or expense on interest rate swaps is accrued and
recorded as an adjustment to the interest income or expense related to the
hedged item. Realized and unrealized gains on currency swaps are deferred and
included in the measurement of the hedged investment over the term of the
contract. Fair value changes arising from forward sale agreements are deferred
in the investment section of the balance sheet and recognized in other
comprehensive income in stockholder's equity in conjunction with the designated
hedged item. The application of SFAS No. 133 as amended, to derivative
instruments, other than warrants, is not expected to have a material impact on
the GATX's consolidated financial statements.
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, changes in the markets served by
GATX such as the rail, air, technology, petroleum, chemical and steel
industries.
COMPARISON OF THIRD QUARTER 2000
TO THIRD QUARTER 1999
Third quarter consolidated net income was $45 million or $.93 per share on a
diluted basis compared to $42 million or $.83 per share on a diluted basis in
the prior year period. For the third quarter of 2000 net income from continuing
operations was $38 million or $.78 per share, on a diluted basis, as compared to
$36 million or $.72 per share for the third quarter of 1999. Earnings per share
was favorably affected by the repurchase of common stock.
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Increases and decreases in gross income and net income (loss) between third
quarter 2000 and third quarter 1999 for continuing operations and discontinued
operations were principally due to the reasons described above in relation to
the nine-month period.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, GATX Capital Corporation ("Capital"), a subsidiary of
GATX Corporation, is a party to actions arising from the issuance by the Federal
Aviation Administration (the "FAA") in January 1996 of Airworthiness Directive
96-01-03 (the "AD"). The AD had the effect of significantly reducing the amount
of freight that ten 747 aircraft may carry. These aircraft (the "Affected
Aircraft") were modified from passenger to freighter configuration by
GATX/Airlog Company ("Airlog"), a California general partnership. A subsidiary
of Capital, GATX Aircraft Corporation, is a partner in Airlog. The modifications
were carried out between 1988 and 1994 by subcontractors of Airlog under
authority of Supplemental Type Certificates ("STC's") issued by the FAA in 1987
pursuant to a design approved by the FAA. In the AD, the FAA stated that the
STCs were issued "in error."
On August 11, 2000, the United States District Court for the Northern District
of California granted Elsinore Aerospace Services LP's ("Elsinore") motion for
summary judgment against Capital on its claim for indemnification and defense
under its contract with Airlog. Under this contract, Elsinore was to develop
engineering, design and analysis necessary to develop Airlog's existing 747-100
STC's into STC's for converting 747-200 aircraft from passenger to freighter
configuration.
One Affected Aircraft was converted for American International Airlines ("AIA")
under the STC's which were obtained pursuant to the Elsinore contract. AIA sued
Elsinore, Capital and Airlog among others as a result of the issuance of the AD.
Capital believes the Court's ruling is in error both as a matter of law and
application of the facts of this claim. Therefore, Capital intends to pursue an
appeal.
Calnev Pipe Line Company ("Calnev"), a wholly owned subsidiary of GATX Terminals
Corporation, has agreed in a Compliance Order with Region 9 of the U.S.
Environmental Protection Agency ("EPA") to comply with and correct certain
alleged violations of the Clean Air Act. In general, the Order requires Calnev
to: (a) complete construction of a new vapor recovery unit in Las Vegas and
limit use of another; (b) comply with certain throughput limits and VOC emission
limits at the Las Vegas loading rack; (c) engage in certain recordkeeping; and,
(d) comply with certain authority and permitting requirements of the EPA and the
Clark County, Nevada, Health District. Calnev has not admitted to any violation
of permit, law or regulation. The United States of America, the State of Nevada
and Clark County have reserved the right to assess civil penalties.
GATX and its subsidiaries are engaged in various matters of litigation,
including but not limited to those 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 GATX and its subsidiaries in the
discharge of such liability could be material to the results of operations for a
given quarter or year but are not likely to be material to GATX's consolidated
financial position.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE
(a) 11A Computation of Basic Net Income Per Share of Common Stock.
11B Computation of Diluted Net Income Per Share of Common Stock.
27 Financial Data Schedule for GATX Corporation for the quarter
ended September 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.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GATX CORPORATION
(Registrant)
/s/ Brian A. Kenney
------------------------------------
Brian A. Kenney
Vice President and
Chief Financial Officer
(Duly Authorized Officer)
Date: November 13, 2000
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