1
MANAGEMENT'S DISCUSSION AND ANALYSIS
During 2000, GATX Corporation redefined its strategic focus and undertook
initiatives to position itself as a specialized finance and leasing company. To
accomplish this goal, certain supply chain related businesses of the GATX
Integrated Solutions Group (ISG) were sold in 2000 and all remaining ISG
businesses have been targeted for divestiture in 2001. As a result of these
actions, the financial data for the ISG segment is presented as discontinued
operations for all periods presented (see Note 15 to the GATX consolidated
financial statements).
GATX Corporation now has two operating segments: Financial Services, comprised
principally of GATX Capital Corporation, and GATX Rail. Through these
businesses, GATX combines asset knowledge and services, structuring expertise,
creative partnering and risk capital to serve customers and partners worldwide.
The following discussion should be read in conjunction with the audited
consolidated financial statements included herein.
21
2
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE DATA/YEAR ENDED DECEMBER 31 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
GROSS INCOME
Lease, interest and financing services $ 1,308.4 $ 1,132.5 $ 1,041.2
Other income 3.4 62.5 173.9
- ------------------------------------------------------------------------------------------------------
REVENUES 1,311.8 1,195.0 1,215.1
Share of affiliates' earnings 79.0 64.5 48.5
- ------------------------------------------------------------------------------------------------------
TOTAL GROSS INCOME 1,390.8 1,259.5 1,263.6
OWNERSHIP COSTS
Depreciation and amortization 334.8 255.5 216.4
Interest 242.6 179.9 180.5
Operating lease expense 178.7 153.0 139.4
- ------------------------------------------------------------------------------------------------------
TOTAL OWNERSHIP COSTS 756.1 588.4 536.3
OTHER COSTS AND EXPENSES
Operating expenses 188.8 247.6 327.0
Selling, general and administrative 209.2 203.4 189.1
Provision for possible losses 22.7 11.0 11.0
Provision for litigation 160.5 -- --
- ------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 53.5 209.1 200.2
INCOME TAXES 22.7 82.8 86.0
- ------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 30.8 126.3 114.2
DISCONTINUED OPERATIONS
Operating results, net of income taxes 27.4 25.0 17.7
Gain on sale of portion of segment, net of income taxes 8.4 -- --
- ------------------------------------------------------------------------------------------------------
TOTAL DISCONTINUED OPERATIONS 35.8 25.0 17.7
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 66.6 $ 151.3 $ 131.9
======================================================================================================
PER SHARE DATA
Basic:
Income from continuing operations $ .64 $ 2.56 $ 2.32
Income from discontinued operations .75 .51 .36
- ------------------------------------------------------------------------------------------------------
Total $ 1.39 $ 3.07 $ 2.68
Average number of common shares (in thousands) 47,880 49,296 49,178
Diluted:
Income from continuing operations $ .63 $ 2.51 $ 2.27
Income from discontinued operations .74 .50 .35
- ------------------------------------------------------------------------------------------------------
Total $ 1.37 $ 3.01 $ 2.62
Average number of common shares and common
share equivalents (in thousands) 48,753 50,301 50,426
- ------------------------------------------------------------------------------------------------------
Dividends declared per common share $ 1.20 $ 1.10 $ 1.00
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
22 GATX CORPORATION AND SUBSIDIARIES
3
Management's Discussion and Analysis (continued)
[PERFORMANCE GRAPHS]
GROSS INCOME
(IN MILLIONS OF DOLLARS)
98 99 00
-------------------------------
1,263.6 1,259.5 1,390.8
SHARE OF
AFFILIATES' EARNINGS
(IN MILLIONS OF DOLLARS)
98 99 00
-------------------------------
48.5 64.5 79.0
NET INCOME
(IN MILLIONS OF DOLLARS)
98 99 00
-------------------------------
131.9 151.3 66.6
DILUTED EARNINGS
PER SHARE
(IN DOLLARS)
98 99 00
-------------------------------
2.62 3.01 1.37
2000 COMPARED TO 1999 GROSS INCOME $1,390.8 million
Gross income increased $131.3 million from 1999, primarily reflecting a $118.7
million increase at Financial Services and a $4.1 million increase at GATX Rail
(Rail). Excluding VAR, the value-added technology equipment sales and service
business of Financial Services that was sold in June 1999, gross income
increased $198.8 million over the prior year.
Financial Services' gross income of $812.3 million increased 17.1% over the
prior year. Excluding VAR, Financial Services' gross income increased 29.7%.
Lease income of $450.8 million increased $120.2 million from 1999, primarily
from new leases within the air, technology and diversified finance portfolios.
Operating lease margin, the excess of operating lease income over operating
lease expense and depreciation, increased 26.3% compared to 1999 due to a larger
lease portfolio. Interest income of $60.1 million increased $19.3 million from
the prior year due to higher average loan balances. The average loan balance was
$196.3 million higher in 2000 compared to 1999 as a result of increased venture
finance activity.
Gains on the sale of stock derived from warrants received as part of financing
and leasing transactions with non-public start-up companies were $52.3 million,
an increase of $37.6 million from the prior year. Asset remarketing income,
which includes gains from the sale of assets from Financial Services' own
portfolio as well as residual sharing fees from the sale of managed assets, was
$57.2 million, $20.7 million lower than 1999. Gains from the sale of stock and
asset remarketing income do not occur evenly between periods.
Financial Services continued to emphasize its partnering strategy to finance and
manage assets. Share of affiliates' earnings increased 25.0% to $75.9 million in
2000. Earnings growth in air and technology joint ventures contributed to this
increase.
Rail's gross income of $575.0 million increased 0.7% over the prior year. Rental
revenue increased by $8.1 million, or 1.5%, over the prior year primarily due to
a larger active North American fleet and was partially offset by lower lease
renewal rates. Several industries serviced by Rail, specifically the chemical
and agricultural sectors, are experiencing adverse market conditions that have
in turn reduced railcar demand. Increased competition and railroad efficiency
have also contributed to lower demand. These factors negatively impacted Rail's
2000 results, and are expected to continue to adversely affect car demand and
lease rates during 2001. Other revenue decreased by $3.2 million in 2000
primarily because fewer railcars were sold in 2000 compared to the prior year.
Approximately 85,100 railcars were on lease throughout North America at
year-end, compared to 83,400 railcars a year ago. Utilization ended the year at
93% on a total fleet of 91,600 railcars, compared to 94% at the end of 1999.
Rail added 5,400 railcars during 2000, which was comparable to 1999 additions.
The majority of Rail's car additions in 2000 occurred during the first half of
the year, as market conditions and growing economic uncertainty led to a sharp
curtailment of new car orders and fleet acquisitions during the second half of
the year. It is anticipated that current market conditions will negatively
impact railcar investments in 2001.
OWNERSHIP COSTS $756.1 million
Ownership costs increased 28.5%, or $167.7 million, compared with the prior
year.
Financial Services' ownership costs increased $142.2 million from last year.
Depreciation and amortization expense of $230.5 million increased $78.6 million
from 1999 and reflected the high level of investment in operating lease assets.
Interest expense increased $60.2 million to $182.6 million in 2000. Higher
average debt outstanding combined with an increase in borrowing rates drove
interest expense higher in 2000. The average debt balance was approximately
$610.7 million higher in 2000 reflecting the financing necessary to fund record
investment volume. Operating lease expense was comparable year over year.
Rail's ownership costs increased $22.1 million, or 8.4%, from last year.
Although Rail's fleet increased in 2000, depreciation and interest did not
change appreciably from last year due to Rail's continued use of sale-leaseback
financing.
GATX CORPORATION AND SUBSIDIARIES 23
4
Management's Discussion and Analysis (continued)
In 2000, $291.1 million of railcars were sold and leased back and the resultant
ownership costs were included in operating lease expense. As a result, operating
lease expense increased $21.5 million to $131.9 million in 2000. Interest
expense of $52.8 million was comparable to the prior year as lower average debt
balances offset increases in rates.
OPERATING EXPENSES $188.8 million
Operating expenses were 23.7% lower than 1999 largely due to the sale of the VAR
business.
Excluding VAR, operating expenses at Financial Services increased $6.7 million,
or 11.2%, primarily due to higher marine operating costs.
Rail's operating costs decreased $6.8 million, or 5.3%. Higher repair and
maintenance expense was offset by a number of nonrecurring items that affected
both years. Repair and maintenance expense increased $8.3 million from 1999 in
part due to the increased use of third-party contract shops necessitated by a
labor dispute at Rail's domestic service centers that was subsequently resolved
in February 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES $209.2 million
Selling, general and administrative expenses increased $5.8 million over the
prior year due to higher human resource and administrative expenses associated
with increased growth initiatives. Excluding VAR, Financial Services' SG&A
increased $16.5 million, or 15.0%, as a result of a significant increase in
business activity, reflecting a record year of new investments. Rail's SG&A was
comparable to the prior year.
PROVISION FOR POSSIBLE LOSSES $22.7 million
The provision for possible losses is derived from GATX's estimate of losses
based on a review of credit, collateral and market risks. The provision for
possible losses increased $11.7 million from 1999. The current year provision at
Financial Services included $5.0 million related to impairment losses on
operating lease equipment. Rail's provision for possible losses increased
$1.6 million in 2000.
PROVISION FOR LITIGATION $160.5 million
GATX Capital Corporation (GCC), a subsidiary of GATX Corporation and the major
part of the Financial Services operating segment, is party to litigation arising
from the issuance by the Federal Aviation Administration of Airworthiness
Directive 96-01-03 in 1996, the effect of which significantly reduced the amount
of freight that ten 747 aircraft were authorized to carry. GATX/Airlog, a
California partnership in which a subsidiary of GCC is a partner, through a
series of contractors, modified these aircraft from passenger to freighter
configuration between 1988 and 1994. GCC reached settlements covering five of
the aircraft, and the remaining five are the subject of this litigation.
On February 16, 2001, a jury found that GATX/Airlog breached certain warranties
under the applicable aircraft modification agreements, and fraudulently failed
to disclose information to the operators of the aircraft. GCC ultimately settled
this issue with Evergreen International Airlines, Inc., which had been party to
the litigation. On March 1, 2001, the jury awarded the remaining plaintiff,
Kalitta Air, $47.5 million in damages plus applicable interest. GCC will pursue
all means of loss recovery including appeals and insurance coverage.
GATX recorded a pretax charge of $160.5 million in 2000 to accrue for its
obligation under the various settlement agreements and management's best
estimate of GCC's potential liability under the judgment entered in favor of
Kalitta Air.
INCOME TAXES $22.7 million
The 2000 effective tax rate of 42.4% was higher than the 1999 rate of 39.6% due
to the relative impact of foreign taxes and certain nondeductible expenses on
pretax income.
INCOME FROM CONTINUING OPERATIONS $30.8 million
Income from continuing operations decreased $95.5 million from last year
primarily due to lower earnings at Financial Services. Financial Services' net
loss of $13.7 million was $84.7 million lower than 1999 and was the result of an
after-tax litigation charge of $97.6 million. Rail's net income of $65.7 million
was $7.2 million lower than the prior year. Corporate and Other's net expense
increased $3.6 million over the prior year.
DISCONTINUED OPERATIONS $35.8 million
Discontinued operations encompasses the GATX Integrated Solutions Group and
comprises GATX Terminals Corporation (Terminals), GATX Logistics, Inc.
(Logistics), and minor business development efforts. In July 2000, GATX
Corporation announced its intent to sell Terminals and reached an agreement in
November to sell substantially all of the U.S. terminals and pipeline assets,
representing the bulk of Terminals' operations. A portion of this transaction
closed in March 2001 and the remainder is expected to close following regulatory
approval. GATX expects to complete the divestiture of the remaining terminals
and supply chain businesses in 2001. After-tax proceeds from the sale of all of
Terminals' locations are expected to approximate $1.0 billion. Ultimate use of
proceeds will depend on market conditions and investment opportunities at the
time each transaction closes.
24 GATX CORPORATION AND SUBSIDIARIES
5
Management's Discussion and Analysis (continued)
GATX sold 81% of Logistics in May 2000, and the remaining 19% in December 2000.
To date, the sale of Logistics has generated an $8.4 million after-tax gain.
Operating results for 2000 were $27.4 million, an increase of $2.4 million from
1999. Strong results in the domestic terminal and pipeline business were
partially offset by losses incurred in the warehousing business and higher
business development costs.
Terminals owned 25.1% of the common stock of Olympic Pipeline Company (Olympic).
On June 10, 1999, a pipeline rupture and explosion occurred on one of the
pipelines owned by Olympic. 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 stock to the Pipelines Business Unit of BP Amoco PLC.
1999 COMPARED TO 1998
GROSS INCOME $1,259.5 million
Gross income decreased $4.1 million from 1998. The comparison of 1999 to 1998 is
influenced by the 1999 midyear sale of the VAR business.
Financial Services' gross income of $693.6 million decreased $36.5 million from
1998. Excluding VAR, revenues increased 11.0% over 1998. Higher gains on the
sale of stock and an increase in lease income generated from a higher average
investment portfolio were offset by lower asset remarketing income. Lease income
increased $62.7 million predominately driven by the growing technology financing
portfolio. Pretax asset remarketing income of $77.9 million was $14.5 million
lower than 1998's record $92.4 million. A significant portion of 1999 asset
remarketing gains was realized from the sale of marine and air assets. Asset
remarketing income and gains from the sale of stock do not occur evenly from
period to period.
Financial Services' share of affiliates' earnings was $60.7 million in 1999, a
32.5% increase over 1998. The increase was primarily attributable to increased
contribution from existing rail joint ventures and new air and marine joint
ventures. Several new joint ventures were formed in 1999, including a joint
venture created to acquire and lease Boeing 737 new generation aircraft and a
joint venture created to provide financing and leasing to start-up
telecommunications companies.
Rail's gross income of $570.9 million increased 6.7% over the 1998 period
primarily due to a larger active North American fleet, a slight increase in
average lease rates, and a gain from the sale of 1,700 grain cars that did not
provide an acceptable level of long-term economic value. Rail added 5,400
railcars during 1999 and at year-end 1999 had 83,400 railcars on lease in North
America. Utilization ended the year at 94% on a total fleet of 88,400 railcars,
which was comparable to utilization at the end of 1998. Rail congestion problems
resulted in strong car demand in the chemical markets and contributed to
unusually high demand in 1998.
Rail's share of earnings of its two European affiliates was $3.8 million in 1999
compared to $2.7 million in 1998. Rail invested an additional $27.8 million in
these affiliates' freight and tank car fleets in 1999.
OWNERSHIP COSTS $588.4 million
Ownership costs increased $52.1 million over 1998. Depreciation and amortization
expense of $255.5 million increased $39.1 million and reflects the high level of
portfolio investments in operating lease assets at Financial Services. The
increase in operating lease expense reflects Rail's sale-leaseback financing of
railcar additions.
OPERATING EXPENSES $247.6 million
Operating expenses decreased $79.4 million from 1998 largely due to the sale of
the VAR business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES $203.4 million
Selling, general and administrative expenses increased 7.6% over 1998 due to
higher human resource and other administrative expenses associated with
increased portfolio investment activity and costs incurred to support business
development and information systems initiatives.
INCOME TAXES $82.8 million
The effective tax rate of 39.6% in 1999 is lower than 1998's rate of 43.0%. The
1998 provision was affected by certain nondeductible expenses, including a
goodwill write-down related to VAR.
INCOME FROM CONTINUING OPERATIONS $126.3 million
Income from continuing operations increased 10.6% from 1998 and was driven by a
$5.8 million increase in Rail's earnings and a $4.5 million increase in
Financial Services' earnings.
DISCONTINUED OPERATIONS 25.0 million
Discontinued operations contributed $25.0 million and $17.7 million to net
income in 1999 and 1998, respectively. The year-over-year increase was largely
attributable to higher contribution margins for terminaling operations as well
as lower asset ownership costs and SG&A. The remainder of the increase was
attributable to increased business development efforts and nonrecurring items,
including a gain on the sale of rights along the Central Florida Pipeline.
GATX CORPORATION AND SUBSIDIARIES 25
6
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
IN MILLIONS/DECEMBER 31 2000 1999
- --------------------------------------------------------------------------------
ASSETS
CASH AND CASH EQUIVALENTS $ 173.6 $ 84.5
RECEIVABLES
Trade accounts 93.7 80.8
Finance leases 878.3 645.7
Secured loans 634.1 358.0
Less--allowance for possible losses (95.2) (113.5)
- --------------------------------------------------------------------------------
1,510.9 971.0
OPERATING LEASE ASSETS AND FACILITIES
Railcars and service facilities 2,695.3 2,698.7
Operating lease investments and other 1,490.4 1,332.4
Less--allowance for depreciation (1,531.6) (1,503.4)
- --------------------------------------------------------------------------------
2,654.1 2,527.7
INVESTMENTS IN AFFILIATED COMPANIES 951.2 757.5
OTHER ASSETS 343.0 386.2
NET ASSETS OF DISCONTINUED OPERATIONS 630.9 702.3
- --------------------------------------------------------------------------------
$6,263.7 $5,429.2
================================================================================
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 317.3 $ 284.0
ACCRUED EXPENSES 141.7 41.7
DEBT
Short-term 557.2 377.0
Long-term:
Recourse 3,093.9 2,685.2
Nonrecourse 494.2 418.8
Capital lease obligations 164.2 176.2
- --------------------------------------------------------------------------------
4,309.5 3,657.2
DEFERRED INCOME TAXES 410.8 388.1
OTHER DEFERRED ITEMS 294.9 222.2
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFERRED ITEMS 5,474.2 4,593.2
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock 35.0 34.5
Additional capital 366.1 338.7
Reinvested earnings 552.2 543.0
Accumulated other comprehensive (loss) income (34.4) 1.2
- --------------------------------------------------------------------------------
918.9 917.4
Less--cost of common shares in treasury (129.4) (81.4)
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 789.5 836.0
- --------------------------------------------------------------------------------
$6,263.7 $5,429.2
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
26 GATX CORPORATION AND SUBSIDIARIES
7
Management's Discussion and Analysis (continued)
ASSETS $6,263.7 million
Total assets increased $834.5 million from the prior period. Assets from
continuing operations increased 19.2% to $5.6 billion in 2000 from $4.7 billion
in 1999. A record level of portfolio investments was partially offset by
depreciation and amortization, the sale-lease-back of railcars at Rail, and
portfolio asset sales at Financial Services.
In addition to the $6.3 billion of assets on the balance sheet, GATX utilizes
approximately $1.6 billion of assets, such as railcars and aircraft, that were
financed with operating leases and therefore are not included on the balance
sheet.
[PERFORMANCE GRAPH]
ASSETS
(IN MILLION OF DOLLARS)
98 99 00
4,581.1 5,429.2 6,263.7
RECEIVABLES $1,510.9 million
Receivables, including finance leases and secured loans, increased $539.9
million primarily due to activity at Financial Services. Significant new
investments, specifically venture and telecommunications, resulted in a $276.1
million increase in secured loans. Finance leases increased $232.6 million over
the prior year due to technology and diversified finance investments,
partially offset by portfolio asset sales.
The allowance for possible losses of $95.2 million decreased $18.3 million
compared to the prior year. The allowance for possible losses at Financial
Services decreased $20.4 in 2000 to $90.6 million and was approximately 2.5% of
net investments, down from 3.8% in the prior year. Write-offs totaled $36.8
million for the year, an increase of $2.6 million from 1999. Rail's allowance
for possible losses increased $2.1 million in 2000.
OPERATING LEASE ASSETS AND FACILITIES $2,654.1 million
Operating lease assets and facilities increased $126.4 million from 1999 largely
due to significant portfolio investments in aircraft and diversified finance
assets and railcar additions. Offsetting these additions were depreciation, the
sale-leaseback of railcars at Rail and portfolio asset sales at Financial
Services.
INVESTMENTS IN AFFILIATED COMPANIES $951.2 million
Investments in affiliated companies grew 25.6% in 2000 with significant
increases in air and technology joint ventures. In 2000, GATX invested $244.4
million in joint ventures and recognized $79.0 million of equity income. Cash
distributions from affiliates increased $51.4 million from 1999 due to increased
distributions from air, technology and real estate joint ventures.
[PERFORMANCE GRAPH]
INVESTMENTS IN AFFILIATED COMPANIES
(IN MILLIONS OF DOLLARS)
98 99 00
632.5 757.5 951.2
OTHER ASSETS $343.0 million
Other assets decreased $43.2 million compared to 1999, with the majority of the
decrease due to lower balances in progress payments for aircraft and investments
in stock warrants and securities held for investment.
NET ASSETS OF DISCONTINUED OPERATIONS $630.9 million
Net assets of discontinued operations decreased $71.4 million from 1999
reflecting the sale of Logistics and a decrease in Terminals' net assets. Net
assets of discontinued operations excludes $514.9 million and $512.1 million of
debt for 2000 and 1999, respectively, that was attributable to discontinued
operations but will remain the obligation of GATX.
ACCRUED EXPENSES $141.7 million
Accrued expenses increased $100.0 million compared to the prior year due to the
provision for litigation.
DEBT $4,309.5 million
Debt increased $652.3 million from the end of 1999 largely due to the funding of
record investment volume at Financial Services.
TOTAL SHAREHOLDERS' EQUITY $789.5 million
Shareholders' equity decreased $46.5 million mainly due to common stock
dividends and common stock repurchased partially offset by net income.
[PERFORMANCE GRAPH]
TOTAL SHAREHOLDERS' EQUITY
(IN MILLIONS OF DOLLARS)
98 99 00
732.9 836.0 789.5
GATX CORPORATION AND SUBSIDIARIES 27
8
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------
IN MILLIONS/YEAR ENDED DECEMBER 31 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Income from continuing operations $ 30.8 $ 126.3 $ 114.2
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
Realized gains on remarketing of leased equipment (58.9) (72.6) (72.9)
Depreciation and amortization 334.8 255.5 216.4
Provision for possible losses 22.7 11.0 11.0
Deferred income taxes 26.8 53.0 35.6
Provision for litigation 160.5 -- --
Net change in trade receivables, inventories,
accounts payable and accrued expenses -- 15.3 (17.1)
Other (66.6) (100.7) 10.6
- ---------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 450.1 287.8 297.8
INVESTING ACTIVITIES
Additions to equipment on lease, net of nonrecourse
financing for leveraged leases (700.8) (697.0) (501.6)
Additions to operating lease assets and facilities (394.5) (366.4) (390.9)
Secured loans extended (436.1) (268.8) (161.6)
Investments in affiliated companies (244.4) (168.0) (147.0)
Other investments and progress payments (152.6) (105.8) (34.6)
- ---------------------------------------------------------------------------------------------------------
Portfolio investments and capital additions (1,928.4) (1,606.0) (1,235.7)
Portfolio proceeds 575.5 503.0 805.1
Proceeds from sale of GATX Logistics, Inc. 74.7 -- --
Proceeds from other asset sales 304.3 208.7 252.5
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities of continuing operations (973.9) (894.3) (178.1)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 1,587.4 981.5 360.1
Repayment of long-term debt (1,072.2) (351.6) (347.2)
Net increase (decrease) in short-term debt 180.2 95.6 (69.2)
Repayment of capital lease obligations (15.7) (16.3) (14.6)
(Repurchase) issuance of common stock and other (20.1) (27.3) 9.0
Cash dividends (57.4) (54.3) (49.3)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities of continuing operations 602.2 627.6 (111.2)
NET TRANSFERS FROM (TO) DISCONTINUED OPERATIONS 10.7 (19.6) 2.7
- ---------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS 89.1 1.5 11.2
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
FROM DISCONTINUED OPERATIONS (5.5) 6.5 5.5
- ---------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 83.6 $ 8.0 $ 16.7
- ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
28 GATX CORPORATION AND SUBSIDIARIES
9
Management's Discussion and Analysis (continued)
GATX generates a significant amount of cash from its operating activities and
proceeds from its investment portfolio, which is used to service debt, pay
dividends, and fund portfolio investments and capital additions. Most of the
capital requirements are considered discretionary and represent additions to
equipment, investment portfolio, railcar fleet, and joint ventures. As a result,
the level of capital spending may be adjusted as conditions in the economy or
GATX's businesses warrant.
NET CASH PROVIDED BY CONTINUING OPERATIONS $450.1 million
Net cash provided by continuing operations increased $162.3 million from 1999.
Net income adjusted for noncash items generated $516.7 million of cash, an
increase of $143.5 million over 1999, primarily due to increased depreciation
and amortization and the provision for litigation. Changes in working capital
and other generated $18.8 million more cash in 2000.
[PERFORMANCE GRAPH]
NET CASH PROVIDED BY CONTINUING OPERATIONS
(IN MILLIONS OF DOLLARS)
98 99 00
297.8 287.8 450.1
PORTFOLIO INVESTMENTS AND CAPITAL ADDITIONS $1,928.4 million
Portfolio investments and capital additions increased $322.4 million from 1999.
Financial Services' portfolio investments of $1.6 billion were $335.0 million
higher than in 1999 as a result of strong market opportunities in the technology
leasing, telecommunications and venture, and air sectors. Financial Services
invested $243.0 million and $139.4 million in joint ventures in 2000 and 1999,
respectively. Significant investments were made in air, telecommunications and
real estate joint ventures in 2000. Financial Services also extended $436.1
million of loans to various businesses in 2000, an increase of $167.3 million
over 1999. Rail's capital additions in 2000 were $374.8 million, including
$369.3 million to acquire 5,400 railcars throughout North America.
[PERFORMANCE GRAPH]
PORTFOLIO INVESTMENTS AND CAPITAL ADDITIONS
(IN MILLIONS OF DOLLARS)
98 99 00
1,235.7 1,606.0 1,928.4
PORTFOLIO PROCEEDS $575.5 million
Portfolio proceeds increased $72.5 million from 1999. Proceeds from the
remarketing of leased equipment decreased $42.6 million from last year. The
timing of assets coming off lease, opportunities to renew leases at attractive
rates and the composition of the investment portfolio all contributed to the
year-over-year decrease in remarketing proceeds. Proceeds from the return of
investments, which include loan principal receipts and return of capital
distributions from joint venture investments, were $397.1 million and $282.0
million for 2000 and 1999, respectively.
[PERFORMANCE GRAPH]
PORTFOLIO PROCEEDS
(IN MILLIONS OF DOLLARS)
98 99 00
805.1 503.0 575.5
PROCEEDS FROM SALE OF GATX LOGISTICS, INC. $74.7 million
This amount relates to the May 2000 sale of 81% of GATX's interest. Proceeds
from the remaining 19% interest sold in December were not received until 2001.
PROCEEDS FROM OTHER ASSET SALES $304.3 million
Proceeds from other asset sales included the receipt of $291.1 million from the
sale-lease-back of railcars at Rail. Additional asset sales included the sale
of approximately 400 railcars at Rail.
NET CASH PROVIDED BY FINANCING
ACTIVITIES OF CONTINUING OPERATIONS $602.2 million
Net cash provided by financing activities of continuing operations decreased
$25.4 million compared to 1999. Record investment volume and capital additions
were funded with proceeds from debt, cash from operations, and proceeds from
asset sales, including the sale of Logistics.
GATX repurchased 1.4 million common shares for $48.0 million in addition to the
1.1 million shares purchased in 1999 for $34.6 million. Additionally, on January
26, 2001, the Board of Directors authorized management to purchase up to an
additional 3.5 million shares of GATX's outstanding common stock.
GATX CORPORATION AND SUBSIDIARIES 29
10
Management's Discussion and Analysis (continued)
LIQUIDITY AND CAPITAL RESOURCES
GATX Rail Corporation (GRC) and GATX Capital Corporation (GCC), both
subsidiaries of GATX Corporation (GATX), have revolving credit facilities. GRC
and GCC also have commercial paper programs and uncommitted money market lines
that are used to fund operating needs. The GRC revolving credit facility expires
in 2003 while GCC's revolving credit facility expires in 2001. Under covenants
of the commercial paper programs and rating agency guidelines, GRC and GCC
individually must keep unused revolving credit capacity at least equal to the
amount of commercial paper outstanding. At December 31, 2000, GATX and its
subsidiaries had available unused committed lines of credit amounting to
$339.4 million.
GRC has a $650.0 million shelf registration for pass-through certificates and
debt securities, of which $476.7 million had been issued. GCC has a shelf
registration of $1.0 billion, of which $600.0 million had been issued.
As of December 31, 2000, GCC approved unfunded transactions totaling $2.1
billion, of which $1.2 billion is expected to fund in 2001. Once approved for
funding, a transaction may not always be completed for various reasons or the
investment may be shared with a partner or sold. Additionally, Rail has $124.1
million of commitments to acquire railcars in 2001.
At December 31, 2000, approximately $635.3 million of subsidiary net assets were
restricted, limiting the ability of the subsidiaries to transfer assets to GATX
in the form of loans, advances or dividends. The majority of net asset
restrictions relate to the revolving credit agreement of GRC and the various
loan agreements of GCC. Such restrictions are not expected to have an adverse
impact on the ability of GATX to meet its cash obligations.
RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS
GATX, like most other companies, is exposed to certain market risks, including
changes in interest rates and currency exchange rates. To manage these risks,
GATX, pursuant to preestablished and preauthorized policies, enters into certain
derivative transactions, principally interest rate swaps and currency swaps.
These instruments and other derivatives are entered into for hedging purposes
only. GATX does not hold or issue derivative financial instruments for
speculative purposes.
GATX's interest expense is affected by changes in interest rates as a result of
its use of variable rate debt instruments, including commercial paper and other
floating rate debt. Based on GATX's variable rate debt at December 31, 2000, if
market rates were to increase hypothetically by 10% of GATX's weighted average
floating rate, after-tax interest expense would increase by approximately $5.6
million in 2001.
Changes in certain currency exchange rates would also affect GATX's reported
earnings. Based on 2000 reported earnings from continuing operations, a uniform
and hypothetical 10% strengthening in the U.S. dollar versus applicable foreign
currencies would decrease after-tax income from continuing operations in 2001 by
approximately $1.9 million.
The interpretation and analysis of the results from the hypothetical changes
to interest rates and currency exchange rates should not be considered in
isolation; such changes would typically have corresponding offsetting effects.
For example, offsetting effects are present to the extent that floating rate
debt is associated with floating rate assets.
30 GATX CORPORATION AND SUBSIDIARIES
11
Management's Discussion and Analysis (continued)
ENVIRONMENTAL MATTERS
Certain operations of GATX's subsidiaries (collectively GATX) present potential
environmental risks principally through the transportation or storage of various
commodities. Recognizing that some risk to the environment is intrinsic to its
operations, GATX is committed to protecting the environment as well as complying
with applicable environmental protection laws and regulations. GATX, as well as
its competitors, is subject to extensive regulation under federal, state and
local environmental laws which have the effect of increasing the costs and
liabilities associated with the conduct of its operations. In addition, GATX's
foreign operations are subject to environmental laws in effect in each
respective jurisdiction.
GATX's policy is to monitor and actively address environmental concerns in a
responsible manner. GATX has received notices from the U.S. Environmental
Protection Agency (EPA) that it is a potentially responsible party (PRP) for
study and cleanup costs at 13 sites under the requirements of the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(Superfund). Under these Acts and comparable state laws, GATX may be required to
share in the cost to clean up various contaminated sites identified by the EPA
and other agencies. GATX has also received notice that it is a PRP at one site
to undertake a Natural Resource Damage Assessment. In all instances, GATX is one
of a number of financially responsible PRPs and has been identified as
contributing only a small percentage of the contamination at each of the sites.
Due to various factors such as the required level of remediation or restoration
and participation in cleanup or restoration efforts by others, GATX's total
cleanup costs at these sites cannot be predicted with certainty; however, GATX's
best estimates for remediation and restoration of these sites have been
determined and are included in its environmental reserves.
Future costs of environmental compliance are indeterminable due to unknowns such
as the magnitude of possible contamination, the timing and extent of the
corrective actions that may be required, the determination of the company's
liability in proportion to other responsible parties, and the extent to which
such costs are recoverable from third parties including insurers. Also, GATX may
incur additional costs relating to facilities and sites where past operations
followed practices and procedures that were considered acceptable at the time
but in the future may require investigation and/or remedial work to ensure
adequate protection to the environment under current or future standards. If
future laws and regulations contain more stringent requirements than presently
anticipated, expenditures may be higher than the estimates, forecasts, and
assessments of potential environmental costs provided below. However, these
costs are expected to be at least equal to the current level of expenditures. In
addition, GATX has provided indemnities for environmental issues to the buyers
of three divested companies for which GATX believes it has adequate reserves.
GATX's environmental reserve at the end of 2000 was $83.2 million and reflects
GATX's best estimate of the cost to remediate known environmental conditions.
Additions to the reserve were $9.3 million and $11.7 million for 2000 and 1999,
respectively. Expenditures charged to the reserve amounted to $11.8 million and
$7.6 million in 2000 and 1999, respectively.
In 2000, GATX made capital expenditures of $8.1 million for environmental and
regulatory compliance compared to $8.3 million in 1999. These projects included
marine vapor recovery systems, discharge prevention compliance, wastewater
systems, impervious dikes, tank modifications for emissions control, and tank
car cleaning systems.
In November 2000, GATX entered into an agreement to sell substantially all of
the U.S. terminals and pipeline assets, representing the bulk of Terminals'
operations. The transaction is structured as a sale of the capital stock of
Terminals. Under the terms of the agreement, various environmental liabilities
associated with the terminals and pipeline assets will be assumed by the buyer.
Excluding the liabilities associated with the sale of Terminals' operations,
GATX's environmental reserve at the end of 2000 was $46.2 million.
FORWARD-LOOKING STATEMENTS
Many economists believe that the U.S. economy is entering a recessionary
environment. Should a recession develop, GATX's prospective results would not be
immune from the effects thereof if there were significant changes in demand for
its services or assets provided. Certain statements in Management's Discussion
and Analysis constitute forward-looking statements and are 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 those suggested in 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 U.S. economy, changes in
interest rates and changes in the markets served by GATX and its customers such
as the aircraft, petroleum, chemical, rail, technology and steel industries.
GATX CORPORATION AND SUBSIDIARIES 31
12
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
IN MILLIONS, EXCEPT NUMBER OF SHARES/DECEMBER 31 DOLLARS DOLLARS DOLLARS SHARES SHARES SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK
Balance at beginning of period $ -- $ -- $ -- 25,311 26,065 26,365
Conversion of preferred stock into common stock -- -- -- (1,697) (754) (300)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period -- -- -- 23,614 25,311 26,065
COMMON STOCK
Balance at beginning of period 34.5 34.3 34.1 55,198,346 54,822,163 54,480,556
Issuance of common stock .5 .2 .2 813,905 372,413 340,107
Conversion of preferred stock into common stock -- -- -- 8,485 3,770 1,500
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period 35.0 34.5 34.3 56,020,736 55,198,346 54,822,163
TREASURY STOCK
Balance at beginning of period (81.4) (46.8) (46.8) (6,599,047) (5,538,230) (5,539,440)
Purchase of common stock (48.0) (34.6) -- (1,407,900) (1,065,010) --
Issuance of common stock -- -- -- 4,352 4,193 1,210
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (129.4) (81.4) (46.8) (8,002,595) (6,599,047) (5,538,230)
----------------------------------------
ADDITIONAL CAPITAL
Balance at beginning of period 338.7 331.6 322.6
Issuance of common stock 27.4 7.1 9.0
- -------------------------------------------------------------------------------------------
Balance at end of period 366.1 338.7 331.6
REINVESTED EARNINGS
Balance at beginning of period 543.0 446.0 363.4
Net income 66.6 151.3 131.9
Dividends declared (57.4) (54.3) (49.3)
- -------------------------------------------------------------------------------------------
Balance at end of period 552.2 543.0 446.0
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance at beginning of period 1.2 (32.2) (17.9)
Foreign currency translation (loss) gain (28.6) 5.1 (16.3)
Unrealized (loss) gain on securities, net (7.0) 28.3 2.0
- -------------------------------------------------------------------------------------------
Balance at end of period (34.4) 1.2 (32.2)
- -------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $789.5 $836.0 $ 732.9
===========================================================================================
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
IN MILLIONS/YEAR ENDED DECEMBER 31 2000 1999 1998
- -------------------------------------------------------------------------------------------
Net income $ 66.6 $151.3 $ 131.9
Other comprehensive (loss) income, net of tax:
Foreign currency translation (loss) gain (28.6) 5.1 (16.3)
Unrealized (loss) gain on securities, net of
reclassification adjustments(a) (7.0) 28.3 2.0
- -------------------------------------------------------------------------------------------
Other comprehensive (loss) income (35.6) 33.4 (14.3)
- -------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 31.0 $184.7 $ 117.6
===========================================================================================
(a) Reclassification adjustments:
Unrealized gain on securities $ 24.6 $ 37.3 $ 2.8
Less--reclassification adjustments for
gains realized included in net income (31.6) (9.0) (.8)
- -------------------------------------------------------------------------------------------
Net unrealized (loss) gain on securities $ (7.0) $ 28.3 $ 2.0
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
32 GATX CORPORATION AND SUBSIDIARIES
13
MANAGEMENT AND AUDITORS LETTERS
TO OUR SHAREHOLDERS
The management of GATX Corporation has prepared the accompanying consolidated
financial statements and related information included in this 2000 Annual Report
to Shareholders and has the primary responsibility for the integrity of this
information. The financial statements have been prepared in conformity with
generally accepted accounting principles and necessarily include certain amounts
which are based on estimates and informed judgments of management.
The financial statements have been audited by the company's independent
auditors, whose report thereon appears on this page. Their role is to form an
independent opinion as to the fairness with which such statements present the
financial position of the company and the results of its operations.
GATX maintains a system of internal accounting controls which is designed to
provide reasonable assurance as to the reliability of its financial records and
the protection of its shareholders' assets. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal control should
not exceed the related benefits. Management believes the company's system
provides this appropriate balance in all material respects.
GATX's system of internal controls is further augmented by an audit committee
composed of independent directors, which meets regularly throughout the year
with management, the independent auditors and the internal auditors; an internal
audit program that includes prompt, responsive action by management; and the
annual audit of the company's financial statements by independent auditors.
/s/ RONALD H. ZECH /s/ BRIAN A. KENNEY /s/ WILLIAM M. MUCKIAN
- ---------------------- ----------------------- ------------------------
RONALD H. ZECH BRIAN A. KENNEY WILLIAM M. MUCKIAN
CHAIRMAN AND CHIEF VICE PRESIDENT AND CONTROLLER AND
EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER CHIEF ACCOUNTING OFFICER
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF GATX CORPORATION
We have audited the accompanying consolidated balance sheets of GATX Corporation
and subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of income, changes in shareholders' equity, comprehensive income, and
cash flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of GATX Corporation
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Chicago, Illinois
January 23, 2001 /s/ ERNST & YOUNG LLP
(except with respect to Note 17,
as to which the date is March 5, 2001) ERNST & YOUNG LLP
GATX CORPORATION AND SUBSIDIARIES 33
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of GATX and its consolidated subsidiaries are
discussed below.
CONSOLIDATION -- The consolidated financial statements include the accounts of
GATX and its majority-owned subsidiaries. Investments in 20 to 50 percent-owned
companies and joint ventures are accounted for under the equity method and are
shown as investments in affiliated companies, with pretax operating results
shown as share of affiliates' earnings.
CASH EQUIVALENTS -- GATX considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
OPERATING LEASE ASSETS AND FACILITIES -- Operating lease assets and facilities
are stated principally at cost. Assets acquired under capital leases are
included in operating lease assets and the related obligations are recorded as
liabilities. Provisions for depreciation include the amortization of the cost of
capital leases and are computed by the straight-line method which results in
equal annual depreciation charges over the estimated useful lives of the assets.
The estimated useful lives of depreciable assets are as follows:
- --------------------------------------------------------------------------------
Railcars 20-38 years
Locomotives 28 years
Aircraft 25 years
Technology equipment/software 2-5 years
Buildings and leasehold improvements 5-40 years
Marine vessels 15-50 years
Machinery and related equipment 3-20 years
- --------------------------------------------------------------------------------
GOODWILL -- GATX has classified the cost in excess of the fair value of net
assets acquired as goodwill. Goodwill, which is included in other assets, is
being amortized on a straight-line basis over 10 to 40 years. GATX continually
evaluates the existence of goodwill impairment on the basis of whether the
goodwill is recoverable from projected undiscounted net cash flows of the
related business. Goodwill, net of accumulated amortization of $18.9 million and
$17.2 million, was $56.6 million and $46.9 million as of December 31, 2000 and
1999, respectively. Amortization expense was $7.2 million, $3.4 million and
$11.3 million in 2000, 1999, and 1998, respectively.
INCOME TAXES -- United States income taxes have not been provided on the
undistributed earnings of foreign subsidiaries and affiliates that GATX intends
to permanently reinvest in these foreign operations. The cumulative amount of
such earnings was $136.9 million at December 31, 2000.
OTHER DEFERRED ITEMS -- Other deferred items include the accrual for
postretirement benefits other than pensions; environmental, general liability,
litigation and workers' compensation reserves; and other deferred credits.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS -- GATX uses off-balance sheet financial
instruments such as interest rate and currency swaps, forwards and similar
contracts to set interest and exchange rates on existing or anticipated
transactions. The fair values of GATX's off-balance sheet financial instruments
(futures, swaps, forwards, options, guarantees, and lending and purchase
commitments) are based on current market prices, settlement values or fees
currently charged to enter into similar agreements.
34 GATX CORPORATION AND SUBSIDIARIES
15
Notes to Consolidated Financial Statements (continued)
The fair values of the hedge contracts are not recognized in the financial
statements. Net amounts paid or received on such contracts are recognized over
the term of the contract as an adjustment to interest expense or the basis of
the hedged financial instrument.
ENVIRONMENTAL LIABILITIES -- Expenditures that relate to current or future
operations are expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do not contribute
to current or future revenue generation, are charged to environmental reserves.
Reserves are recorded in accordance with accounting guidelines to cover work at
identified sites when GATX's liability for environmental cleanup is both
probable and a reasonable estimate of associated costs can be made; adjustments
to initial estimates are recorded as necessary.
REVENUE RECOGNITION -- The majority of GATX's gross income is derived from the
rentals of railcars, commercial aircraft, technology equipment and marine
vessels. In addition, income is derived from finance leases, asset remarketing,
stock sales, secured loans, technology equipment sales, and other services.
FOREIGN CURRENCY TRANSLATION -- The assets and liabilities of GATX's operations
located outside the United States are translated at exchange rates in effect at
year end, and income statements are translated at the average exchange rates
for the year. Adjustments resulting from the translation of foreign currency
financial statements are deferred and recorded as a separate component of
accumulated other comprehensive (loss) income in the shareholders' equity
section of the balance sheet. The cumulative foreign currency translation
adjustment was $(62.3) million and $(33.7) million at the end of 2000 and 1999,
respectively.
INVESTMENTS IN EQUITY SECURITIES -- Financial Services' venture leasing
portfolio includes stock warrants received from investee companies and common
stock resulting from exercising the warrants. These securities are accounted for
as available-for-sale in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. These securities are carried at fair value. Upon receipt, the fair
value of stock warrants is generally not ascertainable due to the early-stage
nature of the investee companies; accordingly, assigned values are nominal. For
subsequent reporting, securities are carried at this nominal value until the
investee's common stock becomes publicly traded. Unrealized gains and losses
arising from marking the portfolio to fair value are included on a net-of-tax
basis as a separate component of accumulated other comprehensive (loss) income.
The unrealized gains on these securities were $27.9 million and $34.9 million at
the end of 2000 and 1999, respectively.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as revenues and expenses during the reporting
period. Actual amounts when ultimately realized could differ from those
estimates.
RECLASSIFICATIONS -- Certain amounts in the 1999 and 1998 financial statements
have been reclassified to conform to the 2000 presentation.
GATX CORPORATION AND SUBSIDIARIES 35
16
Notes to Consolidated Financial Statements (continued)
NEW ACCOUNTING PRONOUNCEMENTS -- Effective January 1, 2001, GATX will adopt 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. 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 be adjusted to fair value
through income. If the derivative is a hedge, depending on the qualified 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 accumulated other comprehensive
(loss) income. The change in fair value of the ineffective portion of a hedge
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. Under current accounting guidance, these items are generally
accounted for as available-for-sale securities. 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 December 31, 2000, a total of $27.9 million of unrealized gains, net of
tax, was recorded in accumulated other comprehensive (loss) income. Of this
amount, $2.5 million is from warrants and will be subject to SFAS No. 133 while
the remaining $25.4 million represents stock held in the available-for-sale
securities portfolio that will continue to be accounted for in accordance with
SFAS No. 115.
Apart from warrants, GATX uses interest rate and currency swap agreements, and
forward sale agreements, as hedges to 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 (loss) income in stockholders' 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 GATX's consolidated financial statements.
36 GATX CORPORATION AND SUBSIDIARIES
17
Notes to Consolidated Financial Statements (continued)
NOTE 2 ACCOUNTING FOR LEASES
The following information pertains to GATX as a lessor:
FINANCE LEASES -- GATX's finance leases include direct financing leases and
leveraged leases. Investment in direct financing leases consists of lease
receivables, plus the estimated residual value of the equipment at the lease
termination dates, less unearned income. Lease receivables represent the total
rent to be received over the term of the lease reduced by rent already
collected. Initial unearned income is the amount by which the original sum of
the lease receivable and the estimated residual value exceeds the original cost
of the leased equipment. Unearned income is amortized to lease income over the
lease term in a manner that produces a constant rate of return on the net
investment in the lease.
Financing leases that are financed principally with nonrecourse borrowings at
lease inception and that meet certain criteria are accounted for as leveraged
leases. Leveraged lease receivables are stated net of the related nonrecourse
debt. Initial unearned income represents the excess of anticipated cash flows
(including estimated residual values, and net of the related debt service) over
the original investment in the lease.
The components of the investment in finance leases were (in millions):
- --------------------------------------------------------------------------------
DECEMBER 31 2000 1999
- --------------------------------------------------------------------------------
Net minimum future lease receivables $ 800.7 $ 664.1
Estimated residual values 368.4 262.7
1,169.1 926.8
Less--unearned income (290.8) (281.1)
- --------------------------------------------------------------------------------
Investment in finance leases $ 878.3 $ 645.7
================================================================================
OPERATING LEASES -- The majority of railcar assets and certain other equipment
leases included in operating lease assets are accounted for as operating leases.
Rental income from operating leases is usually reported on a straight-line basis
over the term of the lease.
MINIMUM FUTURE RECEIPTS -- Minimum future lease receipts from finance leases and
minimum future rental receipts from noncancelable operating leases by year at
December 31, 2000 were (in millions):
- --------------------------------------------------------------------------------
FINANCE OPERATING
LEASES LEASES TOTAL
- --------------------------------------------------------------------------------
2001 $252.2 $ 788.3 $1,040.5
2002 149.9 565.3 715.2
2003 94.6 361.8 456.4
2004 54.1 240.3 294.4
2005 41.8 159.2 201.0
Years thereafter 208.1 406.0 614.1
- --------------------------------------------------------------------------------
$800.7 $2,520.9 $3,321.6
================================================================================
GATX CORPORATION AND SUBSIDIARIES 37
18
Notes to Consolidated Financial Statements (continued)
The following information pertains to GATX as a lessee:
CAPITAL LEASES -- Assets classified as operating lease assets and finance leases
that have been financed under capital leases were (in millions):
- --------------------------------------------------------------------------------
DECEMBER 31 2000 1999
Railcars $ 149.5 $ 150.0
Marine vessels 147.7 159.5
- --------------------------------------------------------------------------------
297.2 309.5
Less--allowance for depreciation (192.2) (194.0)
- --------------------------------------------------------------------------------
105.0 115.5
Finance leases 19.4 6.9
- --------------------------------------------------------------------------------
$ 124.4 $ 122.4
================================================================================
OPERATING LEASES -- GATX has financed railcars, aircraft, and other assets
through sale-leasebacks that are accounted for as operating leases. In addition,
GATX leases certain other assets and office facilities. For one of the operating
leases, a subsidiary of GATX has provided a guarantee to the lessor that the
residual value will be the projected fair market value of the assets. Total
rental expense for the years ended December 31, 2000, 1999, and 1998 was $178.7
million, $153.0 million, and $139.4 million, respectively.
FUTURE MINIMUM RENTAL PAYMENTS -- Future minimum rental payments due under
noncancelable leases at December 31, 2000 were (in millions):
- --------------------------------------------------------------------------------------------------------
NONRECOURSE
CAPITAL OPERATING OPERATING
LEASES LEASES LEASES
- --------------------------------------------------------------------------------------------------------
2001 $30.3 $ 130.3 $39.9
2002 30.0 138.3 37.4
2003 28.1 130.7 40.0
2004 23.3 129.8 39.9
2005 18.3 138.0 41.5
Years thereafter 117.8 1,394.3 559.6
- --------------------------------------------------------------------------------------------------------
$247.8 $2,061.4 $758.3
Less--amounts representing interest (83.6)
- --------------------------------------------------------------------------------------------------------
Present value of future minimum capital lease payments $164.2
========================================================================================================
The above capital lease amounts and certain operating leases do not include the
costs of licenses, taxes, insurance, and maintenance that GATX is required to
pay. Interest expense on the above capital leases was $14.4 million in 2000,
$14.6 million in 1999, and $16.1 million in 1998.
The amounts shown as nonrecourse operating leases reflect rental payments of
three bankruptcy remote, special-purpose corporations that are wholly-owned by
GATX. These rentals are consolidated for accounting purposes, but do not
represent legal obligations of GATX.
38 GATX CORPORATION AND SUBSIDIARIES
19
Notes to Consolidated Financial Statements (continued)
NOTE 3 SECURED LOANS
Secured loans are recorded at the principal amount outstanding plus accrued
interest. The loan portfolio is reviewed regularly, and a loan is classified as
impaired and written down when it is probable that GATX will be unable to
collect all amounts due under the loan agreement. Since most loans are
collateralized, impairment is generally measured as the amount the recorded
investment in the loan exceeds the fair value of the collateral, and any
adjustment is considered in determining the provision for possible losses.
Interest income is not recognized on impaired loans until the outstanding
principal is recovered.
The types of loans in GATX's portfolio are as follows (in millions):
DECEMBER 31 2000 1999
- --------------------------------------------------------------------------------
Equipment $ 368.5 $ 245.7
Venture 254.4 102.7
Golf courses 11.2 9.6
- --------------------------------------------------------------------------------
Total investments $ 634.1 $ 358.0
- --------------------------------------------------------------------------------
Impaired loans (included in total) $ 62.9 $ 22.3
================================================================================
At December 31, 2000, secured loan principal due by year was as follows (in
millions):
- --------------------------------------------------------------------------------
LOAN PRINCIPAL
2001 $171.1
2002 109.8
2003 98.9
2004 51.1
2005 19.1
Years thereafter 184.1
- --------------------------------------------------------------------------------
$634.1
================================================================================
NOTE 4 INVESTMENTS IN AFFILIATED COMPANIES
GATX has investments in 25 to 50 percent-owned companies and joint ventures that
are accounted for using the equity method. These domestic and foreign
investments are in businesses similar to those of GATX's principal subsidiaries.
Distributions received from such affiliates were $119.7 million, $68.3 million,
and $162.4 million in 2000, 1999 and 1998, respectively. These distributions
reflect both operating results and return of principal.
For all affiliated companies held at the end of a year, operating results, as if
GATX held 100 percent interest, were (in millions):
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2000 1999 1998
- --------------------------------------------------------------------------------
Gross income $ 717.2 $ 603.5 $ 448.5
Pretax income 203.4 145.4 116.1
- --------------------------------------------------------------------------------
GATX CORPORATION AND SUBSIDIARIES 39
20
Notes to Consolidated Financial Statements (continued)
For all affiliated companies held at the end of a year, summarized balance sheet
data, as if GATX held 100 percent interest, were (in millions):
- --------------------------------------------------------------------------------
DECEMBER 31 2000 1999
- --------------------------------------------------------------------------------
Total assets $5,209.2 $4,327.6
Long-term liabilities 2,164.6 1,683.1
Other liabilities 623.5 554.2
- --------------------------------------------------------------------------------
Shareholders' equity $2,421.1 $2,090.3
================================================================================
NOTE 5 FOREIGN OPERATIONS
GATX has a number of investments in subsidiaries and affiliated companies that
are located in or derive revenues from foreign countries. Foreign entities
contribute significantly to share of affiliates' earnings. The foreign
identifiable assets represent investments in affiliated companies as well as
fully consolidated assets for Canadian and Mexican railcar operations, and
foreign lease, loan and other investments.
IN MILLIONS, YEAR ENDED OR AT DECEMBER 31 2000 1999 1998
- --------------------------------------------------------------------------------
REVENUES
Foreign $ 212.9 $ 164.1 $ 183.2
United States 1,098.9 1,030.9 1,031.9
- --------------------------------------------------------------------------------
$1,311.8 $1,195.0 $1,215.1
================================================================================
SHARE OF AFFILIATES' EARNINGS
Foreign $ 44.7 $ 29.3 $ 19.9
United States 34.3 35.2 28.6
- --------------------------------------------------------------------------------
$ 79.0 $ 64.5 $ 48.5
================================================================================
IDENTIFIABLE ASSETS FOR CONTINUING OPERATIONS
Foreign $1,200.3 $ 943.9 $ 702.2
United States 4,432.5 3,783.0 3,217.8
- --------------------------------------------------------------------------------
$5,632.8 $4,726.9 $3,920.0
================================================================================
Foreign cash flows generated are used to meet local operating needs and for
reinvestment. The translation of the foreign balance sheets into U.S. dollars
results in an unrealized foreign currency translation adjustment, a component of
accumulated other comprehensive (loss) income.
NOTE 6 SHORT-TERM DEBT AND LINES OF CREDIT
Short-term debt (in millions) and weighted average interest rates as of year end
were:
- --------------------------------------------------------------------------------
2000 2000 1999 1999
DECEMBER 31 AMOUNT RATE AMOUNT RATE
- --------------------------------------------------------------------------------
Commercial paper $ 345.6 7.62% $ 261.5 6.65%
Other short-term borrowings 211.6 7.86% 115.5 6.53%
- --------------------------------------------------------------------------------
$ 557.2 $ 377.0
================================================================================
40 GATX CORPORATION AND SUBSIDIARIES
21
Notes to Consolidated Financial Statements (continued)
Under a revolving credit agreement with a group of banks, GATX Rail Corporation
(GRC) may borrow up to $350.0 million. While at year end no borrowings were
outstanding, availability under the credit line was reduced by $172.0 million of
commercial paper outstanding. GRC also had borrowings of $65.0 million under
unsecured money market lines at December 31, 2000.
GATX Capital Corporation (GCC) and one of its wholly-owned subsidiaries have
commitments under credit agreements with a group of banks for revolving credit
loans totaling $335.0 million of which $161.4 million was available at December
31, 2000; availability under the credit line was reduced by $173.6 million of
commercial paper outstanding.
Both GRC's and GCC's primary revolving credit agreements contain various
restrictive covenants, including dividend restrictions and requirements to
maintain a defined minimum net worth and certain financial ratios. Both GRC and
GCC met all credit agreement requirements at December 31, 2000.
Interest expense on short-term debt was $31.7 million in 2000, $25.1 million in
1999, and $23.5 million in 1998. The portion of interest expense allocated to
discontinued operations was $5.8 million, $2.2 million and $1.4 million for
2000, 1999 and 1998, respectively.
NOTE 7 Long-Term Debt
Long-term debt (in millions) and the range of interest rates as of year end
were:
INTEREST FINAL
DECEMBER 31 RATES MATURITY 2000 1999
- --------------------------------------------------------------------------------
VARIABLE RATE
Term notes 5.23%- 7.76% 2001-2005 $ 829.2 $ 388.0
Nonrecourse obligations 6.19%- 8.38% 2002-2015 91.2 28.7
- --------------------------------------------------------------------------------
920.4 416.7
- --------------------------------------------------------------------------------
FIXED RATE
Term notes 5.88%-10.45% 2001-2011 2,264.7 2,297.2
Nonrecourse obligations 6.28%-10.70% 2001-2005 403.0 390.1
- --------------------------------------------------------------------------------
2,667.7 2,687.3
- --------------------------------------------------------------------------------
$ 3,588.1 $ 3,104.0
================================================================================
Maturities of GATX's long-term debt as of December 31, 2000 for the next five
years were (in millions):
MATURITIES
- --------------------------------------------------------------------------------
2001 $693.7
2002 701.2
2003 771.1
2004 313.7
2005 216.3
At December 31, 2000, certain technology assets, aircraft, railcars, and
other equipment with a net carrying value of $929.7 million were pledged as
collateral for $587.1 million of notes and bonds.
GATX CORPORATION AND SUBSIDIARIES 41
22
Notes to Consolidated Financial Statements (continued)
Interest expense on long-term debt, net of capitalized interest, was $253.5
million in 2000, $191.9 million in 1999, and $194.9 million in 1998. Interest
expense capitalized as part of the cost of construction of major assets was
$10.6 million in 2000, $4.6 million in 1999, and $3.3 million in 1998. The
portion of the interest allocated to discontinued operations was $51.2 million,
$49.5 million, and $52.6 million for 2000, 1999 and 1998, respectively.
NOTE 8 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, GATX utilizes off-balance sheet financial
instruments to manage financial market risk, including interest rate and foreign
exchange risk.
At December 31, 2000, GATX had the following off-balance sheet financial
instruments (in millions):
- ------------------------------------------------------------------------------------------------------------------------
NOTIONAL PAY RATE/ RECEIVE
AMOUNT INDEX RATE/INDEX MATURITY
- ------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS
GATX pays fixed, receives floating $384.3 4.93-7.54% libor-libor+1.57% 2001-2011
GATX pays floating, receives fixed 285.0 libor-libor+.75% 5.90-7.20% 2001-2006
- ------------------------------------------------------------------------------------------------------------------------
RECEIVE DELIVER MATURITY
- ------------------------------------------------------------------------------------------------------------------------
CURRENCY SWAPS AND FORWARDS
Canadian dollar swaps $137.8 c$188.9 2001-2013
Euro forward $ 28.7 Euro 24.5 2011
Deutsche mark forwards $ 46.8 84.3DM 2002
- ------------------------------------------------------------------------------------------------------------------------
Following is a summary of GATX's interest rate hedge activity (in millions):
PAY FIXED PAY FLOATING
- --------------------------------------------------------------------------------
INTEREST RATE SWAPS
Balance at January 1, 1999 $ 772.8 $ 702.0
Additions 85.3 --
Maturities (262.9) (10.0)
- --------------------------------------------------------------------------------
Balance at December 31, 1999 595.2 692.0
Additions 206.7 150.0
Maturities (417.6) (557.0)
- --------------------------------------------------------------------------------
Balance at December 31, 2000 $ 384.3 $ 285.0
================================================================================
GATX uses interest rate swaps and forward starting interest rate swaps to
convert floating rate debt to fixed rate debt and to manage the floating/fixed
rate mix of the debt portfolio. GATX also uses forward starting interest rate
swaps and treasury derivatives to manage interest rate risk associated with the
anticipated issuance of debt.
Historically, GRC had a program that utilized interest rate swaps to match the
cash flow characteristics of its debt portfolio and its railcar leases. The
interest rate swaps effectively converted GRC's long-term fixed rate debt to
debt with maturities of three months to five years, matching the terms of the
railcar leases. During 2000, GRC terminated this program and implemented a new
program that utilizes interest rate swaps to achieve a target level of floating
interest rate exposure in its debt portfolio to reduce income volatility over
the long-term. GCC uses interest rate swaps in addition to commercial paper and
floating rate medium-term notes to match fund its floating rate lease and loan
portfolio with floating rate borrowings.
42 GATX CORPORATION AND SUBSIDIARIES
23
Notes to Consolidated Financial Statements (continued)
The net amount payable or receivable from the interest rate swap agreements is
accrued as an adjustment to interest expense. The fair value of interest rate
swap agreements is determined based on the differences between the contractual
rate of interest and the rates currently quoted for agreements of similar terms
and maturities. The fair value of the interest rate swaps was $1.0 million at
December 31, 2000 and $4.9 million at December 31, 1999.
GATX has entered into currency swaps and forwards to hedge $137.8 million of
debt obligations of its Canadian subsidiaries, $46.8 million in debt obligations
associated with a German joint venture and $28.7 million in future euro receipts
for a leveraged lease transaction. The fair value of the aggregate of currency
swap and forward agreements was $26.9 million at December 31, 2000 and $6.0
million at December 31, 1999.
In the event that a counterparty fails to meet the terms of the interest rate
swap agreement or a foreign exchange contract, GATX's exposure is limited to the
interest rate or currency differential. GATX manages the credit risk of
counterparties by dealing only with institutions that the company considers
financially sound and by avoiding concentrations of risk with a single
counterparty. GATX considers the risk of non-performance to be remote.
NOTE 9 FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The following methods and assumptions were used to estimate the fair value of
financial instruments:
The carrying amount of cash and cash equivalents, trade receivables, accounts
payable, and short-term debt approximates fair value because of the short
maturity of those instruments. Also, the carrying amount of variable rate
long-term debt and variable rate secured loans approximates fair value.
The fair value of fixed rate secured loans was estimated using discounted cash
flow analyses, at interest rates currently offered for loans with similar terms
to borrowers of similar credit quality.
The fair value of fixed rate long-term debt was estimated by performing a
discounted cash flow calculation using the term and market interest rate for
each note based on GATX's current incremental borrowing rates for similar
borrowing arrangements. Portions of fixed rate long-term debt have effectively
been converted to floating rate debt by utilizing interest rate swaps (GATX pays
floating rate interest, receives fixed rate interest), as described in Note 8.
In such instances, the increase (decrease) in the fair value of the fixed rate
long-term debt would be offset in part by the increase (decrease) in the fair
value of the interest rate swap.
The following table sets forth the carrying amounts and fair values of the
company's fixed rate instruments (in millions):
2000 2000 1999 1999
CARRYING FAIR CARRYING FAIR
DECEMBER 31 AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------
Secured loans--fixed $ 623.5 $ 606.2 $ 292.2 $ 290.1
Long-term debt--fixed 2,667.7 2,610.4 2,687.3 2,621.4
GATX CORPORATION AND SUBSIDIARIES 43
24
Notes to Consolidated Financial Statements (continued)
NOTE 10 PENSION AND OTHER POSTRETIREMENT BENEFITS
GATX and certain of its subsidiaries maintain noncontributory defined benefit
pension plans covering their respective employees. Benefits payable under the
pension plans are based on years of service and/or final average salary. The
funding policy for the pension plans is based on an actuarially determined cost
method allowable under Internal Revenue Service regulations.
In addition to the pension plans, GATX's other postretirement plans provide
health care, life insurance and other benefits for certain retired employees who
meet established criteria. Most domestic employees are eligible for health
care and life insurance benefits if they retire from GATX with immediate pension
benefits under the GATX plan. The plans are either contributory or
noncontributory, depending on various factors.
The following tables set forth pension obligations and plan assets as of
December 31 and other postretirement obligations for continuing operations as
of December 31 (in millions):
- ---------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
PENSION PENSION RETIREE HEALTH RETIREE HEALTH
BENEFITS BENEFITS AND LIFE AND LIFE
- ---------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of period $312.2 $304.6 $ 50.3 $ 51.0
Service cost 8.3 7.4 .3 .3
Interest cost 21.8 20.6 3.4 3.4
Plan amendments .7 -- -- --
Actuarial loss (8.7) 1.6 (1.6) .9
Benefits paid (22.0) (22.0) (4.9) (5.3)
- ---------------------------------------------------------------------------------------------------------
Benefit obligation at end of period $312.3 $312.2 $ 47.5 $ 50.3
- ---------------------------------------------------------------------------------------------------------
CHANGE IN FAIR VALUE OF PLAN ASSETS
Plan assets at beginning of period $353.5 $325.8 $ -- $ --
Actual return on plan assets (7.5) 49.2 -- --
Company contributions .5 .5 4.9 5.3
Benefits paid (22.0) (22.0) (4.9) (5.3)
- ---------------------------------------------------------------------------------------------------------
Plan assets at end of period $324.5 $353.5 $ -- $ --
=========================================================================================================
FUNDED STATUS
Funded status of the plan $ 12.2 $ 41.3 $(47.5) $(50.3)
Unrecognized net gain (22.3) (46.9) (14.7) (14.7)
Unrecognized prior service cost 2.0 1.8 -- --
Unrecognized net transition (asset) obligation (.1) (.2) .4 .4
- ---------------------------------------------------------------------------------------------------------
Accrued cost $ (8.2) $ (4.0) $(61.8) $(64.6)
=========================================================================================================
AMOUNT RECOGNIZED
Prepaid benefit cost $ 1.4 $ 3.6 $ -- $ --
Accrued benefit liability (9.6) (9.3) (56.2) (65.0)
Intangible asset -- 1.7 (5.6) .4
- ---------------------------------------------------------------------------------------------------------
Total recognized $ (8.2) $ (4.0) $(61.8) $(64.6)
=========================================================================================================
44 GATX CORPORATION AND SUBSIDIARIES
25
Notes to Consolidated Financial Statements (continued)
The components of pension and other postretirement benefit costs are as follows
(in millions):
- ---------------------------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
PENSION PENSION PENSION RETIREE HEALTH RETIREE HEALTH RETIREE HEALTH
BENEFITS BENEFITS BENEFITS AND LIFE AND LIFE AND LIFE
- ---------------------------------------------------------------------------------------------------------------
Service cost $ 8.3 $ 7.4 $ 5.9 $ .3 $ .3 $ .2
Interest cost 21.8 20.6 20.4 3.4 3.4 3.6
Expected return on
plan assets (26.1) (23.9) (22.6) -- -- --
Amortization of:
Unrecognized prior
service cost .4 .4 .4 -- -- --
Unrecognized net
loss (gain) .3 .2 .1 (.3) (.2) (.6)
Unrecognized net
(asset) obligation -- (.1) -- -- .1 --
- ---------------------------------------------------------------------------------------------------------------
Net costs $ 4.7 $ 4.6 $ 4.2 $ 3.4 $ 3.6 $ 3.2
===============================================================================================================
Postretirement benefit costs are for continuing operations only. Pension costs
include $1.2 million, $1.4 million and $1.2 million related to discontinued
operations for the years ended December 31, 2000, 1999 and 1998, respectively.
GATX amortizes the prior service cost using a straight-line method over the
average remaining service period of employees to receive benefits under the
plan.
Assumptions as of December 31:
- --------------------------------------------------------------------------------------------------
2000 1999 2000 1999
PENSION PENSION RETIREE HEALTH RETIREE HEALTH
BENEFITS BENEFITS AND LIFE AND LIFE
- --------------------------------------------------------------------------------------------------
Discount rate 7.50% 7.00% 7.50% 7.00%
Expected return on plan assets 8.75% 8.75% N/A N/A
Rate of compensation increases 5.00% 5.00% 5.00% 5.00%
===================================================================================================
The assumed health care cost trend rate was 5.0% for participants over the age
of 65 and 6.0% for participants under the age of 65 for 2000 and thereafter. The
health care cost trend rate has a significant effect on the other postretirement
benefit cost and obligation. A 1% increase in the trend rate would increase the
cost by $.3 million and the obligation by $3.8 million. A 1% decrease in the
trend rate would decrease the cost by $.3 million and the obligation by $3.4
million.
In addition to contributions to its defined benefit plans, GATX maintains two
401(k) retirement plans that are available to substantially all salaried and
certain other employee groups. GATX may contribute to the plans as defined by
their respective terms. Contributions to such plans for continuing operations
were $1.8 million, $1.6 million, and $1.5 million for 2000, 1999, and 1998,
respectively.
GATX CORPORATION AND SUBSIDIARIES 45
26
Notes to Consolidated Financial Statements (continued)
NOTE 11 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of GATX's deferred tax liabilities and assets were (in
millions):
- ----------------------------------------------------------------------------
DECEMBER 31 2000 1999
- ----------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Book/tax basis difference due to depreciation $ 197.5 $ 211.0
Leveraged leases 80.6 58.3
Investment in joint ventures 67.9 101.8
Lease accounting (other than leveraged) 192.3 99.2
Other 67.2 58.0
- ----------------------------------------------------------------------------
Total deferred tax liabilities 605.5 528.3
DEFERRED TAX ASSETS
Alternative minimum tax credit 18.9 16.4
Accruals not currently deductible for tax purposes 82.9 24.4
Allowance for possible losses 37.0 44.3
Postretirement benefits other than pensions 21.6 22.5
Other 34.3 32.6
- ----------------------------------------------------------------------------
Total deferred tax assets 194.7 140.2
- ----------------------------------------------------------------------------
Net deferred tax liabilities $ 410.8 $ 388.1
============================================================================
At December 31, 2000, GATX had an alternative minimum tax credit of $67.5
million, of which $48.6 million is included as part of net assets of
discontinued operations. The credit can be carried forward indefinitely to
reduce future regular tax liabilities.
46 GATX CORPORATION AND SUBSIDIARIES
27
Notes to Consolidated Financial Statements (continued)
GATX and its United States subsidiaries file a consolidated federal income tax
return. Amounts shown as Current -- Federal represent taxes payable as
determined by the Alternative Minimum Tax. Income taxes for continuing
operations consisted of (in millions):
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2000 1999 1998
- --------------------------------------------------------------------------------
CURRENT
Domestic:
Federal $ (18.5) $ 14.4 $ 40.5
State and local 3.1 4.0 4.1
- --------------------------------------------------------------------------------
(15.4) 18.4 44.6
Foreign 11.3 11.4 5.8
- --------------------------------------------------------------------------------
(4.1) 29.8 50.4
DEFERRED
Domestic:
Federal 24.5 44.6 22.7
State and local (2.4) 5.7 6.8
- --------------------------------------------------------------------------------
22.1 50.3 29.5
Foreign 4.7 2.7 6.1
- --------------------------------------------------------------------------------
26.8 53.0 35.6
- --------------------------------------------------------------------------------
Income tax expense $ 22.7 $ 82.8 $ 86.0
- --------------------------------------------------------------------------------
Income taxes (refunded) paid $ (18.3) $ 28.7 $ 47.9
- --------------------------------------------------------------------------------
The reasons for the difference between GATX's effective income tax rate and the
federal statutory income tax rate were:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2000 1999 1998
- --------------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
Add effect of:
State income taxes 1.3 3.0 3.6
Foreign income 4.4 1.5 2.1
Other 1.7 .1 2.3
- --------------------------------------------------------------------------------
Effective income tax rate 42.4% 39.6% 43.0%
================================================================================
GATX CORPORATION AND SUBSIDIARIES 47
28
Notes to Consolidated Financial Statements (continued)
NOTE 12 SHAREHOLDERS' EQUITY
In 1998, the company's shareholders approved an amendment to GATX's certificate
of incorporation that increased authorized shares of common stock from 60
million to 120 million shares and effected a two-for-one stock split, in the
form of a stock dividend. Par value remained at $.625 per share after the split.
All share and per share amounts in the accompanying consolidated financial
statements have been restated accordingly.
GATX's certificate of incorporation also authorizes 5 million shares of
preferred stock at a par value of $1.00 per share. Shares of preferred stock
issued and outstanding consist of Series A and B $2.50 cumulative convertible
preferred stock, which entitles holders to a cumulative annual cash dividend of
$2.50 per share. Each share of such preferred stock may be called for redemption
by GATX at $63 per share, has a liquidating value of $60 per share, and may be
converted into five shares of common stock.
Holders of both series of $2.50 convertible preferred stock and common stock are
entitled to one vote for each share held. Except in certain instances, all such
classes vote together as a single class.
A total of 9,184,361 shares of common stock were reserved at December 31, 2000,
for the following:
- --------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------
Conversion of outstanding preferred stock 115,613
Incentive compensation programs 5,450,755
Employee service awards 36,250
Employee stock purchase plan 3,581,743
- --------------------------------------------------------------------------------
9,184,361
- --------------------------------------------------------------------------------
In an effort to ensure the fair value to all shareholders in the event of an
unsolicited takeover offer for the company, GATX adopted a Shareholders' Rights
Plan in August 1998. Shareholders received a distribution of one right for each
share of the company's common stock held. Initially the rights are represented
by GATX's common stock certificates and are not exercisable. The rights will be
exercisable only if a person acquires or announces a tender offer that would
result in beneficial ownership of 20 percent or more of the company's common
stock. If a person acquires beneficial ownership of 20 percent or more of the
company's common stock, all holders of rights other than the acquiring person
will be entitled to purchase the company's common stock at half price. The
rights are scheduled to expire on August 14, 2008.
NOTE 13 INCENTIVE COMPENSATION PLANS
The GATX Corporation 1995 Long Term Incentive Compensation Plan (the 1995 Plan)
contains provisions for the granting of nonqualified stock options, incentive
stock options, stock appreciation rights (SARs), cash and common stock
individual performance units (IPUs), restricted stock rights, restricted common
stock, performance awards and exchange stock options. An aggregate of 5,000,000
shares of common stock may be issued under the 1995 Plan. As of December 31,
2000, 1,758,015 shares were available for issuance under the 1995 Plan.
48 GATX CORPORATION AND SUBSIDIARIES
29
Notes to Consolidated Financial Statements (continued)
Nonqualified stock options and incentive stock options may be granted for the
purchase of common stock for periods not longer than ten years from the date of
grant. The exercise price will not be less than the higher of market value at
date of grant or par value of the common stock. All options become exercisable
commencing on a date no earlier than one year from the date of grant.
IPUs may be granted to key employees and, if predetermined performance goals are
met, will be redeemed in cash and common stock, as applicable, with the
redemption value determined in part by the fair market value of the common stock
as of the date of redemption and in part by the extent to which preestablished
performance goals have been achieved. A total of 44,842 IPUs were granted during
2000 and 79,477 IPUs in total were outstanding at the end of the year. In 2000,
9,881 shares of common stock and $.2 million in cash were paid to the
participants in redemption of previously issued IPUs.
Restricted stock rights may be granted to key employees entitling them to
receive a specified number of shares of restricted common stock. The recipients
of restricted common stock are entitled to all dividends and voting rights, but
the shares are not transferable prior to the expiration of a "restriction
period" as determined at the discretion of the Compensation Committee of the
Board of Directors. Performance Awards are granted to employees who have been
granted restricted stock rights or restricted common stock, but these Awards may
not exceed the market value of the restricted common stock when restrictions
lapse. The Performance Awards provide cash payments if certain criteria and
earnings goals are met over a predetermined period. During 2000, three grants
totaling 1,500 shares of restricted stock were made.
The Exchange Stock Option Program became part of the 1995 Plan in 1999 and
allows key employees to make an irrevocable election to exchange up to 25% of
their pensionable incentive payments for stock options, with a minimum
contribution of $5,000 in any calendar year. The purchase price of the options
is based on a percentage of the Black-Scholes value of stock options of GATX
common stock as specified by the Compensation Committee. Exchange Stock Options
are granted in January and are exercisable immediately following grant
thereof. All Exchange Stock Options will terminate on the tenth anniversary of
the date of grant. The exercise price of the options is the fair market value of
the common stock on the grant date. In January 2001, 70,275 options were granted
for the year 2000.
Under the GATX Employee Stock Purchase Plan, which became effective July 1,
1999, GATX is authorized to issue up to 247,167 shares of common stock to
eligible employees during the calendar year. Such employees may have up to
$10,000 of earnings withheld to purchase GATX common stock. The purchase price
of the stock on the date of exercise is 85% of the lesser of its market price at
the beginning or end of the plan year. In accordance with the plan, GATX sold
77,964 shares to employees in 2000.
Stock options are outstanding under the GATX Corporation 1985 Long Term
Incentive Compensation Plan (the 1985 Plan), as amended, but no additional
options, stock or awards may be issued thereunder.
GATX CORPORATION AND SUBSIDIARIES 49
30
Notes to Consolidated Financial Statements (continued)
Data with respect to both the 1985 Plan and the 1995 Plan, including the range
of exercise prices per share for 2000 and 1999, are set forth below:
- ----------------------------------------------------------------------------------------------
NUMBER OF SHARES UNDER STOCK OPTION PLANS 2000 1999 PRICE PER SHARE
- ----------------------------------------------------------------------------------------------
Outstanding at January 1 3,651,100 3,388,275 $9.97-39.75
Granted 881,871 591,050 28.69-36.22
Exercised (811,903) (272,550) 9.97-39.72
Canceled (263,026) (55,675) 12.75-39.72
- ----------------------------------------------------------------------------------------------
Outstanding at December 31 3,458,042 3,651,100 $9.97-39.75
- ----------------------------------------------------------------------------------------------
Outstanding at December 31, by year granted:
1990 -- 56,000 $ 9.97
1991 49,000 168,000 14.00
1992 98,200 153,200 12.75
1993 141,500 259,800 18.84
1994 224,900 372,100 20.91
1995 270,576 451,100 23.78-25.28
1996 480,763 593,800 23.16-24.91
1997 427,970 510,350 27.44-33.47
1998 434,262 504,200 33.38-39.72
1999 500,100 582,550 30.78-39.75
2000 830,771 -- 28.69-36.22
- ----------------------------------------------------------------------------------------------
Total 3,458,042 3,651,100 $9.97-39.75
=============================================================================================
Options exercisable at December 31 2,365,356 2,691,175
Options available for future grant at December 31 1,758,015 2,388,041
=============================================================================================
ACCOUNTING FOR STOCK OPTIONS -- GATX has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
for its employee stock options. Under these guidelines, no compensation expense
is recognized because the exercise price of GATX's employee stock options equals
the market price of the underlying stock on the measurement date.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, Accounting for Stock-Based Compensation, and has been determined
as if GATX had accounted for its employee stock options under the fair value
method. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions for
2000, 1999 and 1998: dividend yield of 2.8%, 3.1% and 3.1%, respectively;
volatility factor of the expected market price of GATX's common stock of .23,
.20 and .19, respectively; expected life of the option of five years, six years
and six years, respectively; and weighted average risk-free interest rate of
5.0%, 6.5% and 4.8%, respectively.
The Black-Scholes model, one of the most frequently referenced models to value
options, was developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions,
including expected stock price volatility. Because GATX's employee stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
50 GATX CORPORATION AND SUBSIDIARIES
31
Notes to Consolidated Financial Statements (continued)
For purposes of this pro forma disclosure, the estimated fair value of the
options is amortized to expense over the option vesting period. The resultant
pro forma net income and earnings per share were (in millions, except for
earnings per share information):
- -----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2000 1999 1998
Pro forma net income $ 62.3 $ 148.5 $ 129.8
Pro forma earnings per share:
Basic $ 1.30 $ 3.01 $ 2.64
Diluted $ 1.28 $ 2.95 $ 2.57
- -----------------------------------------------------------------------------
NOTE 14 COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
GATX's revenues are derived from a wide range of industries and companies.
Approximately 19% of total revenues are generated from the transportation of
products for the chemical industry; for similar services, 11% of revenues are
derived from the petroleum industry. In addition, approximately 17% of GATX's
assets consist of commercial aircraft operated by various domestic and
international airlines.
Under its lease agreements, GATX retains legal ownership of the asset except
where such assets have been financed by sale-leasebacks. With most loan
financings, the loan is collateralized by the equipment. GATX performs credit
evaluations prior to approval of a lease or loan contract. Subsequently, the
creditworthiness of the customer and the value of the collateral are monitored
on an ongoing basis. GATX maintains an allowance for possible losses and other
reserves to provide for potential losses that could arise should customers
become unable to discharge their obligations to GATX and to provide for
permanent declines in investment value.
At December 31, 2000, GATX and its aircraft joint ventures had commitments of
$1.2 billion for orders and options for interests in 63 new aircraft to be
delivered between 2001 and 2006. GATX also had other firm commitments totaling
$124.1 million to acquire railcars in 2001.
GATX's subsidiaries had $405.3 million of residual and rental guarantees
outstanding at December 31, 2000. Guarantees are commitments issued to guarantee
performance of an affiliate to a third party, generally in the form of lease and
loan payment guarantees, or to guarantee the value of an asset at the end of a
lease. Lease and loan payment guarantees generally involve guaranteeing
repayment of the financing required to acquire assets being leased by an
affiliate to third parties, and are in lieu of making direct equity investments
in the affiliate. Asset residual value guarantees represent GATX Capital
Corporation's commitment to a third party that an asset or group of assets will
be worth a specified amount at the end of a lease term. Exposure to certain
supplier and loan payment guarantees at GATX's subsidiaries is mitigated by,
among other things, a third-party cross guaranty. Based on known and expected
market conditions, management does not believe that the asset residual value
guarantees will result in any adverse financial impact to GATX.
GATX's subsidiaries are also parties to letters of credit and bonds totaling
$30.5 million and $38.3 million at December 31, 2000 and 1999, respectively. In
GATX's past experience, virtually no claims have been made against these
financial instruments. Management does not expect any material losses to result
from these off-balance sheet instruments because performance is not expected to
be required, and, therefore, is of the opinion that the fair value of these
instruments is zero.
GATX CORPORATION AND SUBSIDIARIES 51
32
Notes to Consolidated Financial Statements (continued)
GATX and its subsidiaries are engaged in various matters of litigation 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 amounts, if any, required to be paid by GATX and its
subsidiaries in the discharge of such liabilities, are not likely to be material
to GATX's consolidated financial position or results of operations.
NOTE 15 DISCONTINUED OPERATIONS
In May 2000, GATX sold 81% of GATX Logistics, Inc. (Logistics), a member of the
GATX Integrated Solutions Group (ISG) segment. The remaining 19% of Logistics
was sold in December 2000. In July 2000, GATX announced its intent to sell GATX
Terminals Corporation (Terminals), a member of ISG, and reached an agreement in
November to sell substantially all of the U.S. terminals and pipeline assets,
representing the bulk of Terminals' operations. A portion of this transaction
closed in March 2001 and the remainder is expected to close following regulatory
approval. GATX expects to complete the divestiture of the remaining terminals
and supply chain businesses in 2001.
The overall sale of ISG is expected to generate a net gain. Losses on individual
asset sales incurred after the measurement date have been deferred and will be
recognized as a reduction of the overall gain realized on the sale. The sale of
Logistics generated an after-tax gain, of which $8.4 million was recognized in
2000. The Logistics gain was recognized in the current period as the transaction
occurred prior to the measurement date for discontinued operations treatment.
An additional $4.2 million after-tax gain will be recognized in the first
quarter of 2001 on the sale of Logistics.
GATX's financial statements have been restated to reflect the ISG segment as a
discontinued operation for all periods presented. Corporate allocations to
discontinued operations were for services provided. Operating results include
interest expense on debt to be assumed by the buyer and an allocation of the
interest expense on GATX's general credit facilities based on actual historical
financing requirements.
Operating results of the discontinued ISG operation are presented below (in
millions):
YEAR ENDED DECEMBER 31 2000 1999 1998
- --------------------------------------------------------------------------------
Gross income $469.9 $599.4 $586.5
Income, net of income taxes of $16.8, $19.8 and $13.9 27.4 25.0 17.7
Assets and liabilities of the discontinued operations are summarized below (in
millions):
DECEMBER 31 2000 1999
- --------------------------------------------------------------------------------
Accounts receivable, net $ 41.5 $ 70.6
Tank storage terminals, pipelines and other, net 856.6 754.3
Investment in affiliated companies 73.9 199.8
Other assets 67.5 115.2
Accounts payable and accrued expenses 64.9 112.4
Long-term debt 147.8 152.8
Deferred items 195.9 172.4
- --------------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS $630.9 $702.3
================================================================================
52 GATX CORPORATION AND SUBSIDIARIES
33
Notes to Consolidated Financial Statements (continued)
NOTE 16 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 depict the profitability,
financial position and cash flow of each of GATX's continuing business segments.
Segment profitability is presented to reflect operating results inclusive of
allocated support expenses from the parent company and interest costs based upon
the debt levels shown below.
Financial Services represents GATX Capital Corporation and its subsidiaries and
affiliates, which arrange and service the financing of equipment and other
capital assets on a worldwide basis, and American Steamship Company, which
operates self-unloading vessels on the Great Lakes.
GATX Rail represents GATX Rail Corporation and its foreign subsidiaries and
affiliates, which lease and manage tank cars and other specialized railcars.
- ------------------------------------------------------------------------------------------------------------
FINANCIAL GATX CORPORATE INTER-
IN MILLIONS SERVICES RAIL AND OTHER SEGMENT TOTAL
- ------------------------------------------------------------------------------------------------------------
2000
PROFITABILITY
Revenues $ 736.4 $ 572.0 $ 7.3 $(3.9) $1,311.8
Share of affiliates' earnings 75.9 3.0 .1 -- 79.0
- ------------------------------------------------------------------------------------------------------------
Gross income 812.3 575.0 7.4 (3.9) 1,390.8
Interest expense (182.6) (52.8) (7.9) .7 (242.6)
Depreciation and amortization (230.5) (100.5) (1.6) (2.2) (334.8)
(Loss) income from continuing operations
before taxes (23.1) 105.9 (29.3) -- 53.5
(Loss) income from continuing operations (13.7) 65.7 (21.2) -- 30.8
- ------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Debt 2,938.9 760.3 648.4 (38.1) 4,309.5
Equity 333.4 359.7 101.5 (5.1) 789.5
Investments in affiliated companies 866.8 83.9 .5 -- 951.2
Identifiable assets 3,950.7 1,669.6 718.9 (75.5) 6,263.7
- ------------------------------------------------------------------------------------------------------------
ITEMS AFFECTING CASH FLOW
Net cash provided by continuing operations 297.1 151.8 1.2 -- 450.1
Portfolio proceeds 575.5 -- -- -- 575.5
- ------------------------------------------------------------------------------------------------------------
Total cash provided 872.6 151.8 1.2 -- 1,025.6
Portfolio investments and capital additions 1,552.8 374.8 .8 -- 1,928.4
=============================================================================================================
GATX CORPORATION AND SUBSIDIARIES 53
34
Notes to Consolidated Financial Statements (continued)
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL GATX CORPORATE INTER-
IN MILLIONS SERVICES RAIL AND OTHER SEGMENT TOTAL
- ----------------------------------------------------------------------------------------------------------------
1999
PROFITABILITY
Revenues $ 632.9 $ 567.1 $ 1.9 $ (6.9) $1,195.0
Share of affiliates' earnings 60.7 3.8 -- -- 64.5
- ----------------------------------------------------------------------------------------------------------------
Gross income 693.6 570.9 1.9 (6.9) 1,259.5
Interest expense (122.4) (52.6) (7.3) 2.4 (179.9)
Depreciation and amortization (151.9) (100.1) (1.4) (2.1) (255.5)
Income (loss) from continuing operations
before taxes 117.9 117.5 (25.0) (1.3) 209.1
Income (loss) from continuing operations 71.0 72.9 (16.7) (.9) 126.3
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Debt 2,255.3 831.0 579.7 (8.8) 3,657.2
Equity 362.8 327.5 150.7 (5.0) 836.0
Investments in affiliated companies 665.5 91.3 .7 -- 757.5
Identifiable assets 3,088.9 1,693.8 732.1 (85.6) 5,429.2
- ----------------------------------------------------------------------------------------------------------------
ITEMS AFFECTING CASH FLOW
Net cash provided by continuing operations 161.5 141.4 (15.1) -- 287.8
Portfolio proceeds 503.0 -- -- -- 503.0
- ----------------------------------------------------------------------------------------------------------------
Total cash provided (used) 664.5 141.4 (15.1) -- 790.8
Portfolio investments and capital additions 1,217.8 386.5 1.7 -- 1,606.0
================================================================================================================
1998
PROFITABILITY
Revenues $ 684.3 $ 532.3 $ 3.2 $ (4.7) $1,215.1
Share of affiliates' earnings 45.8 2.7 -- -- 48.5
- ----------------------------------------------------------------------------------------------------------------
Gross income 730.1 535.0 3.2 (4.7) 1,263.6
Interest expense (121.4) (52.9) (7.8) 1.6 (180.5)
Depreciation and amortization (117.2) (97.3) (1.1) (.8) (216.4)
Income (loss) from continuing operations
before taxes 121.1 108.5 (27.1) (2.3) 200.2
Income (loss) from continuing operations 66.5 67.1 (17.9) (1.5) 114.2
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Debt 1,717.4 710.4 539.1 (3.9) 2,963.0
Equity 304.6 298.3 134.1 (4.1) 732.9
Investments in affiliated companies 570.3 62.2 -- -- 632.5
Identifiable assets 2,443.8 1,539.9 698.3 (100.9) 4,581.1
- ----------------------------------------------------------------------------------------------------------------
ITEMS AFFECTING CASH FLOW
Net cash provided by continuing operations 148.5 166.1 (16.8) -- 297.8
Portfolio proceeds 811.5 -- -- (6.4) 805.1
- ----------------------------------------------------------------------------------------------------------------
Total cash provided (used) 960.0 166.1 (16.8) (6.4) 1,102.9
Capital additions and portfolio investments 857.8 384.8 .8 (7.7) 1,235.7
================================================================================================================
54 GATX CORPORATION AND SUBSIDIARIES
35
Notes to Consolidated Financial Statements (continued)
NOTE 17 SUBSEQUENT EVENTS
GATX Capital Corporation (GCC), a subsidiary of GATX Corporation and the major
part of the Financial Services operating segment, is party to litigation arising
from the issuance by the Federal Aviation Administration of Airworthiness
Directive 96-01-03 in 1996, the effect of which significantly reduced the amount
of freight that ten 747 aircraft were authorized to carry. GATX/Airlog, a
California partnership in which a subsidiary of GCC is a partner, through a
series of contractors, modified these aircraft from passenger to freighter
configuration between 1988 and 1994. GCC reached settlements covering five of
the aircraft, and the remaining five are the subject of this litigation.
On February 16, 2001, a jury found that GATX/Airlog breached certain warranties
under the applicable aircraft modification agreements, and fraudulently failed
to disclose information to the operators of the aircraft. GCC ultimately settled
this issue with Evergreen International Airlines, Inc., which had been party to
the litigation. On March 1, 2001, the jury awarded the remaining plantiff,
Kalitta Air, $47.5 million in damages plus applicable interest. GCC will pursue
all means of loss recovery including appeals and insurance coverage.
GATX recorded a pretax charge of $160.5 million in 2000 to accrue for its
obligation under the various settlement agreements and management's best
estimate of GCC's potential liability under the judgment entered in favor of
Kalitta Air.
On March 1, 2001, GATX completed the sale of the majority of Terminals' domestic
operations to Kinder Morgan Energy Partners, L.P. The sale included Terminals'
domestic terminaling operations and the Central Florida Pipeline Company. The
sale of Calnev Pipeline Company to Kinder Morgan Energy Partners, L.P. is
expected to close following regulatory approval. Approximately $800 million of
the purchase price was realized in conjunction with this portion of the
transaction, including approximately $620 million in cash plus the assumption
of debt and other liabilities. The remainder of the purchase price will be
realized upon closing of the Calnev Pipeline Company sale.
GATX has also completed the sale of substantially all of Terminals' European
operations, including the sale of GATX Terminals Antwerpen N.V., a wholly-owned
terminal operation based in Antwerp, to Oiltanking GmbH, and the sale of its 50%
interest in Terminales Portuarias, S.A. to its partner, Petrofrance Chemie S.A.
Additionally, subsequent to year-end, GATX sold various smaller supply
chain businesses.
In the fourth quarter of 2000, employees at Rail's four major U.S. service
centers rejected the terms of a company-proposed labor contract. As a result of
this situation, the amount of work at Rail's service centers declined and the
use of third-party contract shops increased. On February 26, 2001, employees at
Rail's domestic service centers approved a new labor contract. Subsequent to
December 31, 2000, Rail decided to shut down the service center located in East
Chicago, Indiana. The three remaining service centers were not affected by this
decision.
GATX CORPORATION AND SUBSIDIARIES 55
36
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) AND COMMON STOCK INFORMATION
- -----------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
IN MILLIONS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER(b) TOTAL
- -----------------------------------------------------------------------------------------------------------------------
2000
Gross income $309.0 $342.5 $364.3 $375.0 $1,390.8
Ownership costs and operating expenses
from continuing operations 204.4 233.7 244.4 262.4 944.9
Income (loss) from continuing operations 37.6 32.4 37.6 (76.8) 30.8
Income from discontinued operations 3.0 9.1 7.5 16.2 35.8
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 40.6 $ 41.5 $ 45.1 $(60.6) $ 66.6
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:(a)
Basic:
Income (loss) from continuing operations $ .78 $ .68 $ .79 $(1.61) $ .64
Income from discontinued operations .06 .19 .16 .34 .75
- -----------------------------------------------------------------------------------------------------------------------
Total $ .84 $ .87 $ .95 $(1.27) $ 1.39
Diluted:
Income (loss) from continuing operations $ .76 $ .67 $ .78 $(1.60) $ .63
Income from discontinued operations .06 .19 .15 .33 .74
- -----------------------------------------------------------------------------------------------------------------------
Total $ .82 $ .86 $ .93 $(1.27) $ 1.37
=======================================================================================================================
1999
Gross income $303.1 $331.1 $314.1 $311.2 $1,259.5
Ownership costs and operating expenses
from continuing operations 202.1 220.0 201.7 212.2 836.0
Income from continuing operations 31.6 32.6 36.4 25.7 126.3
Income from discontinued operations 7.6 5.5 5.8 6.1 25.0
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 39.2 $ 38.1 $ 42.2 $ 31.8 $ 151.3
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA:(a)
Basic:
Income from continuing operations $ .63 $ .66 $ .74 $ .53 $ 2.56
Income from discontinued operations .16 .11 .11 .12 .51
- -----------------------------------------------------------------------------------------------------------------------
Total $ .79 $ .77 $ .85 $ .65 $ 3.07
Diluted:
Income from continuing operations $ .63 $ .64 $ .72 $ .52 $ 2.51
Income from discontinued operations .15 .11 .11 .12 .50
- -----------------------------------------------------------------------------------------------------------------------
Total $ .78 $ .75 $ .83 $ .64 $ 3.01
=======================================================================================================================
(a) Quarterly earnings per share results may not be additive, as per share
amounts are computed independently for each quarter and the full year is
based on the respective weighted average common shares and common stock
equivalents outstanding.
(b) The provision for litigation was $160.5 million on a pretax basis, $97.6
million on an after-tax basis.
COMMON STOCK INFORMATION -- GATX common stock is listed on the New York and
Chicago Stock Exchanges under ticker symbol GMT. The approximate number of
common stock holders of record as of March 8, 2001 was 3,590. The following
table shows the reported high and low sales price of GATX common shares on the
New York Stock Exchange, which is the principal market for GATX shares, and the
dividends declared per share:
- -------------------------------------------------------------------------------------
2000 1999
2000 2000 1999 1999 DIVIDENDS DIVIDENDS
COMMON STOCK HIGH LOW HIGH LOW DECLARED DECLARED
- -------------------------------------------------------------------------------------
First quarter $ 40.25 $ 28.38 $ 40.63 $ 32.00 $ .30 $ .275
Second quarter 38.75 33.13 40.69 28.06 .30 .275
Third quarter 45.19 34.13 40.88 30.25 .30 .275
Fourth quarter 50.50 36.31 35.94 29.00 .30 .275
- -------------------------------------------------------------------------------------
56 GATX CORPORATION AND SUBSIDIARIES
37
SELECTED CONSOLIDATED FINANCIAL DATA (5-YEAR SUMMARY)
- -----------------------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE DATA
YEAR ENDED OR AT DECEMBER 31 2000(a) 1999 1998 1997((b) 1996
- -----------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Gross income $ 1,390.8 $ 1,259.5 $ 1,263.6 $ 1,197.0 $ 889.4
Costs and expenses 1,337.3 1,050.4 1,063.4 1,027.6 740.2
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 53.5 209.1 200.2 169.4 149.2
Income taxes 22.7 82.8 86.0 66.8 60.1
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations 30.8 126.3 114.2 102.6 89.1
Income from discontinued operations 35.8 25.0 17.7 (153.5) 13.6
NET INCOME (LOSS) $ 66.6 $ 151.3 $ 131.9 $ (50.9) $ 102.7
=================================================================================================================
PER SHARE DATA
Basic:
Income from continuing operations $ .64 $ 2.56 $ 2.32 $ 2.15 $ 1.93
Income (loss) from
discontinued operations .75 .51 .36 (3.43) .29
- -----------------------------------------------------------------------------------------------------------------
TOTAL $ 1.39 $ 3.07 $ 2.68 $ (1.28) $ 2.22
- -----------------------------------------------------------------------------------------------------------------
Average number of common shares
(in thousands) 47,880 49,296 49,178 45,084 40,379
Diluted:
Income from continuing operations $ .63 $ 2.51 $ 2.27 $ 2.06 $ 1.82
Income (loss) from
discontinued operations .74 .50 .35 (3.34) .28
TOTAL $ 1.37 $ 3.01 $ 2.62 $ (1.28) $ 2.10
- -----------------------------------------------------------------------------------------------------------------
Average number of common shares
and common share equivalents
(in thousands) 48,753 50,301 50,426 45,084 48,924
Dividends declared per share
of common stock $ 1.20 $ 1.10 $ 1.00 $ .92 $ .86
=================================================================================================================
FINANCIAL CONDITION
Assets $ 6,263.7 $ 5,429.2 $ 4,581.1 $ 4,583.8 $ 4,307.6
Long-term debt and
capital lease obligations 3,752.3 3,280.2 2,663.1 2,674.1 2,493.9
Shareholders' equity 789.5 836.0 732.9 655.4 774.9
=================================================================================================================
(a) The 2000 provision for litigation was $160.5 million on a pretax basis,
$97.6 million on an after-tax basis.
(b) The 1997 restructuring charge was $224.8 million on a pretax basis, $162.8
million on an after-tax basis.
GATX CORPORATION AND SUBSIDIARIES 57
38
GATX LOCATIONS OF OPERATIONS
FINANCIAL SERVICES Hearne, Texas
Tierra Blanca, Mexico
HEADQUARTERS Red Deer, Alberta
Sarnia, Ontario
San Francisco, California Montreal, Quebec
Moose Jaw, Saskatchewan
OFFICES
MINI SERVICE CENTERS
Lafayette, California
Farmington, Connecticut Macon, Georgia
Tampa, Florida Terre Haute, Indiana
Chicago, Illinois Geismar, Louisiana
Williamsville, New York Plaquemine, Louisiana
Toledo, Ohio Midland, Michigan
Seattle, Washington Cincinnati, Ohio
Sydney, Australia Catoosa, Oklahoma
Toulouse, France Copper Hill, Tennessee
Frankfurt, Germany Freeport, Texas (2)
Tokyo, Japan Cd. Valles, Mexico
Toronto, Ontario Coatcacoalcos, Mexico
Singapore, Republic of Singapore Guaymas, Mexico
London, United Kingdom Hibueras, Mexico
Miramar, Mexico
AFFILIATES Monterrey, Mexico
Orizaba, Mexico
San Francisco, California Tlalnepantla, Mexico
La Grange, Illinois
Sydney, Australia MOBILE SERVICE UNITS
Bad Homburg, Germany
Dublin, Ireland Mobile, Alabama
Zug, Switzerland Colton, California
Zurich, Switzerland Lake City, Florida
Elstree, United Kingdom East Chicago, Indiana
London, United Kingdom Norco, Louisiana
Woking, United Kingdom Carteret, New Jersey
Las Cruces, New Mexico
GATX RAIL Albany, New York
Masury, Ohio
HEADQUARTERS Galena Park, Texas
Nederland, Texas
Chicago, Illinois Olympia, Washington
Altamira, Mexico
BUSINESS OFFICES Coatcacoalcos, Mexico
Guaymas, Mexico
Valencia, California Edmonton, Alberta
Atlanta, Georgia Red Deer, Alberta
Chicago, Illinois Vancouver, British Columbia
Hackensack, New Jersey Montreal, Quebec
Philadelphia, Pennsylvania Moose Jaw, Saskatchewan
Pittsburgh, Pennsylvania
Houston, Texas AFFILIATES
Mexico City, Mexico
Calgary, Alberta Vienna, Austria
Toronto, Ontario Hamburg, Germany
Montreal, Quebec Zug, Switzerland
MAJOR SERVICE CENTERS
Colton, California
Waycross, Georgia
East Chicago, Indiana
58 GATX CORPORATION AND SUBSIDIARIES
39
GATX DIRECTORS AND OFFICERS
GATX BOARD OF DIRECTORS MILES L. MARSH(2,3)
Former Chairman and Chief Executive Officer,
ROD F. DAMMEYER (2,4) Fort James Corporation
President,
CAC llc MICHAEL E. MURPHY(2,4)
Retired; Former Vice Chairman
JAMES M. DENNY(2,3) and Chief Administrative Officer,
Retired; Former Managing Director, Sara Lee Corporation
William Blair Capital Partners, LLC
JOHN W. ROGERS, JR.(1,4)
RICHARD FAIRBANKS(1,3) Chairman and Chief Executive Officer,
Counselor, Ariel Capital Management, Inc.
Center for Strategic & International Studies
RONALD H. ZECH
WILLIAM C. FOOTE(1,3) Chairman, President and Chief Executive Officer,
Chairman, President and Chief Executive Officer, GATX Corporation
USG Corporation
(1) Member, Audit Committee
DEBORAH M. FRETZ(1,4) (2) Member, Compensation Committee
Senior Vice President, (3) Member, Nominating Committee
Mid-Continent Refining, Marketing & Logistics, (4) Member, Retirement Funds Review Committee
Sunoco, Inc.
GATX OFFICERS RONALD J. CIANCIO
Vice President, General Counsel and Secretary
(left to right)
CLIFFORD J. PORZENHEIM
WILLIAM J. HASEK Vice President, Corporate Strategy
Treasurer
(pictured on page 5)
WILLIAM M. MUCKIAN
Controller and Chief Accounting Officer RONALD H. ZECH
Chairman, President and Chief Executive Officer
GAIL L. DUDDY
Vice President, Human Resources BRIAN A. KENNEY
Vice President and Chief Financial Officer
GATX CORPORATION AND SUBSIDIARIES 59
40
GATX CORPORATE INFORMATION
ANNUAL MEETING GATX Corporation welcomes and encourages questions
and comments from its shareholders, potential investors,
Friday, April 27, 2001, 9:00 a.m. financial professionals and the public at large. To better
Northern Trust Company serve interested parties, the following GATX personnel
Assembly Room, 6th Floor may be contacted by letter, telephone, e-mail and/or fax.
50 South LaSalle Street
Chicago, Illinois 60675 Requests for information or brochures may be made
through GATX's website. Many GATX publications
FINANCIAL INFORMATION AND PRESS RELEASES may be directly viewed or downloaded from this site.
A copy of the company's Annual Report on Form 10-K
for 2000 and selected other information are available TO REQUEST PUBLISHED FINANCIAL INFORMATION
without charge. AND FINANCIAL REPORTS, CONTACT:
Corporate information and press releases may be found GATX Corporation
at http://www.gatx.com. A variety of current and histor- Investor Relations Department
ical financial information, press releases and photographs 500 West Monroe Street
are available at this site. Chicago, Illinois 60661-3676
Telephone: (800) 428-8161
GATX press releases may be obtained by accessing E-mail: ir@gatx.com
PR Newswire Company's News On-Call automated fax
service at (800) 758-5804. The company identification AUTOMATED REQUEST LINE FOR MATERIALS:
number for GATX is 105121. (312) 621-6300
INQUIRIES ANALYSTS, INSTITUTIONAL SHAREHOLDERS AND
FINANCIAL COMMUNITY PROFESSIONALS:
Inquiries regarding dividend checks, the dividend
reinvestment plan, stock certificates, replacement of Robert C. Lyons, Director of Investor Relations
lost certificates, address changes, account consolida- Telephone: (312) 621-6633
tion, transfer procedures and year end tax information E-mail: rclyons@gatx.com
should be addressed to GATX Corporation's Transfer
Agent and Registrar: INDIVIDUAL INVESTORS' INQUIRIES:
Mellon Investor Services LLC Irma Dominguez, Investor Relations Coordinator
Overpeck Centre Telephone: (312) 621-8799
85 Challenger Road Fax: (312) 621-6648
Ridgefield Park, NJ 07660 E-mail: irma.dominguez@gatx.com
Telephone: (800) 851-9677
TDD for Hearing Impaired: (800) 231-5469 QUESTIONS REGARDING SALES, SERVICE, LEASE
Foreign Shareholders: (201) 329-8660 INFORMATION, OR CUSTOMER SOLUTIONS:
TDD Foreign Shareholders: (201) 329-8354
Internet: http://www.mellon-investor.com E-mail: cs@gatx.com
GATX Rail: (312) 621-6564
INFORMATION RELATING TO SHAREHOLDER OWNERSHIP, GATX Capital: (415) 955-3200
DIVIDEND PAYMENTS, OR SHARE TRANSFERS:
INDEPENDENT AUDITORS
Lisa M. Ibarra, Assistant Secretary Ernst & Young LLP
Telephone: (312) 621-6603
Fax: (312) 621-6647
E-mail: lmibarra@gatx.com
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Executive Photography by Charlie Westerman
Origami Photography by Howard Bjornson
Printing by Lithographix, Inc.
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60 GATX CORPORATION AND SUBSIDIARIES