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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-2328
------------------------------
GATX Corporation
(Exact name of registrant as specified in its charter)
NEW YORK 36-1124040
(State of incorporation) (I.R.S. Employee Identification No.)
500 WEST MONROE STREET
CHICAGO, ILLINOIS 60661-3676
(Address of principal executive offices, including zip code)
(312) 621-6200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 50,010,233 shares of common
stock were outstanding as of July 15, 2005.
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GATX CORPORATION
FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2005
INDEX
Item No. Page No.
- ------------------------------------------------------------------------------------------------------ --------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited)......................................... 1
Consolidated Balance Sheets (Unaudited)............................................... 3
Consolidated Statements of Cash Flows (Unaudited)..................................... 4
Notes to the Consolidated Financial Statements (Unaudited)............................ 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements............................................................ 14
Business Overview..................................................................... 14
Risk Factors.......................................................................... 14
Financial Summary..................................................................... 15
Financial Performance Measures ....................................................... 15
Comparison of Six Months and Three Months Results of Operations by Business Segment... 16
Cash Flow and Liquidity............................................................... 27
New Accounting Pronouncements......................................................... 29
Critical Accounting Policies.......................................................... 29
Non-GAAP Financial Measures........................................................... 29
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 31
Item 4. Controls and Procedures....................................................................... 31
PART II - OTHER INFORMATION
Item 6. Exhibits...................................................................................... 32
SIGNATURE ............................................................................................ 33
EXHIBIT INDEX ........................................................................................ 34
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
GROSS INCOME
Lease income ........................................... $ 216.4 $ 192.5 $ 432.1 $ 379.6
Marine operating revenue ............................... 40.1 33.3 46.0 40.0
Interest income ........................................ 3.0 3.9 6.4 12.4
Asset remarketing income ............................... 22.4 8.6 32.8 27.1
Gain on sale of securities ............................. 1.5 2.1 6.4 3.2
Fees ................................................... 3.5 5.1 7.1 8.7
Other .................................................. 12.1 21.1 25.2 35.8
-------- -------- -------- --------
Revenues ............................................... 299.0 266.6 556.0 506.8
Share of affiliates' earnings .......................... 31.3 16.4 54.2 34.0
-------- -------- -------- --------
TOTAL GROSS INCOME ..................................... 330.3 283.0 610.2 540.8
OWNERSHIP COSTS
Depreciation ........................................... 49.4 48.3 101.2 93.4
Interest, net .......................................... 40.8 39.9 82.5 78.4
Operating lease expense ................................ 50.9 43.5 94.4 87.2
-------- -------- -------- --------
TOTAL OWNERSHIP COSTS .................................. 141.1 131.7 278.1 259.0
OTHER COSTS AND EXPENSES
Maintenance expenses ................................... 45.8 47.1 94.9 93.4
Marine operating expenses .............................. 30.4 25.9 35.3 31.5
Other operating expenses ............................... 12.1 9.5 22.3 22.2
Debt extinguishment costs .............................. 11.9 -- 11.9 --
Selling, general and administrative expenses ........... 42.3 43.2 81.0 81.4
Reversal of provision for possible losses .............. (2.0) (3.1) (5.2) (5.0)
Asset impairment charges ............................... 1.3 1.0 3.4 1.1
Fair value adjustments for derivatives ................. (6.8) .4 (8.9) (.7)
-------- -------- -------- --------
TOTAL OTHER COSTS AND EXPENSES ......................... 135.0 124.0 234.7 223.9
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .. 54.2 27.3 97.4 57.9
INCOME TAXES ........................................... 19.7 7.6 34.5 18.5
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS ...................... 34.5 19.7 62.9 39.4
DISCONTINUED OPERATIONS ................................
Operating results, net of tax .......................... .4 15.5 .4 18.7
Loss on sale of segment, net of tax .................... -- (.4) -- (.4)
-------- -------- -------- --------
TOTAL DISCONTINUED OPERATIONS .......................... .4 15.1 .4 18.3
-------- -------- -------- --------
NET INCOME ............................................. $ 34.9 $ 34.8 $ 63.3 $ 57.7
======== ======== ======== ========
1
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ -----------------
2005 2004 2005 2004
------- ------- -------- -------
PER SHARE DATA
Basic:
Income from continuing operations ............................................ $ .69 $ .40 $ 1.26 $ .80
Income from discontinued operations .......................................... .01 .31 .01 .37
------- ------- -------- -------
Total ........................................................................ $ .70 $ .71 $ 1.27 $ 1.17
======= ======= ======== =======
Average number of common shares (in thousands) ............................... 49,931 49,297 49,778 49,279
Diluted: (a)
Income from continuing operations ............................................ $ .62 $ .38 $ 1.14 $ .76
Income from discontinued operations .......................................... .01 .28 .01 .33
------- ------- -------- -------
Total ........................................................................ $ .63 $ .66 $ 1.15 $ 1.09
======= ======= ======== =======
Average number of common shares and common share equivalents (in thousands) .. 61,039 54,794 60,794 54,784
Dividends declared per common share .......................................... $ .20 $ .20 $ .40 $ .40
(a) Diluted earnings per share for each of the three and six months ended June
30, 2004 have been restated to reflect the impact of EITF 04-8. See Note
10 to the consolidated financial statements for more information.
The accompanying notes are an integral part of these consolidated financial
statements.
2
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS)
JUNE 30 DECEMBER 31
2005 2004
---------- -----------
ASSETS
CASH AND CASH EQUIVALENTS ............................................................. $ 112.2 $ 63.4
RESTRICTED CASH ....................................................................... 57.1 60.0
RECEIVABLES
Rent and other receivables ............................................................ 78.2 77.0
Finance leases ........................................................................ 312.7 285.9
Loans ................................................................................. 59.1 89.2
Less: allowance for possible losses ................................................... (17.5) (22.1)
--------- ---------
432.5 430.0
OPERATING LEASE ASSETS, FACILITIES AND OTHER
Rail .................................................................................. 3,592.3 3,847.9
Air ................................................................................... 1,574.1 1,704.1
Specialty ............................................................................. 59.8 65.4
Other ................................................................................. 234.3 212.3
Less: allowance for depreciation ...................................................... (1,918.3) (1,924.1)
--------- ---------
3,542.2 3,905.6
Progress payments for aircraft and other equipment .................................... 20.9 20.0
--------- ---------
3,563.1 3,925.6
INVESTMENTS IN AFFILIATED COMPANIES ................................................... 814.0 718.6
GOODWILL .............................................................................. 86.0 93.9
OTHER INVESTMENTS ..................................................................... 53.7 79.0
OTHER ASSETS .......................................................................... 245.4 242.4
--------- ---------
$ 5,364.0 $ 5,612.9
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES ................................................. $ 342.0 $ 378.2
DEBT
Commercial paper and bank credit facilities ........................................... 16.5 72.1
Recourse .............................................................................. 2,679.5 2,887.1
Nonrecourse ........................................................................... 90.7 93.5
Capital lease obligations ............................................................. 71.5 79.4
--------- ---------
2,858.2 3,132.1
DEFERRED INCOME TAXES ................................................................. 735.8 721.0
OTHER LIABILITIES ..................................................................... 328.3 300.7
--------- ---------
TOTAL LIABILITIES ..................................................................... 4,264.3 4,532.0
SHAREHOLDERS' EQUITY
Preferred stock ($1.00 par value, 5,000,000 shares authorized, 20,348 and 21,468
shares of Series A and B Cumulative Convertible Preferred Stock issued and
outstanding as of June 30, 2005 and December 31, 2004, respectively, aggregate
liquidation preference of $1.2 million) ............................................. * *
Common stock ($.625 par value, 120,000,000 authorized, 57,951,965 and 57,477,201
shares issued and 50,005,134 and 49,530,370 shares outstanding as of June 30, 2005
and December 31, 2004, respectively) ................................................ 36.1 35.9
Additional capital .................................................................... 410.1 401.7
Reinvested earnings ................................................................... 793.7 750.3
Accumulated other comprehensive (loss) income ......................................... (11.6) 21.6
--------- ---------
1,228.3 1,209.5
Treasury shares, at cost (7,946,831 shares at June 30, 2005 and December 31, 2004)... (128.6) (128.6)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ............................................................ 1,099.7 1,080.9
--------- ---------
$ 5,364.0 $ 5,612.9
========= =========
* Less than $.1 million.
The accompanying notes are an integral part of these consolidated financial
statements.
3
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- ---------------------
2005 2004 2005 2004
-------- --------- --------- ----------
OPERATING ACTIVITIES
Net income ................................................................ $ 34.9 $ 34.8 $ 63.3 $ 57.7
Less: Income from discontinued operations ................................ .4 15.1 .4 18.3
------- ------- -------- ---------
Income from continuing operations ......................................... 34.5 19.7 62.9 39.4
Adjustments to reconcile income from continuing operations to net cash
provided by operating activities of continuing operations:
Realized gains on remarketing of leased equipment .................... (8.7) (.3) (16.7) (17.7)
Gain on sale of securities ........................................... (1.5) (2.1) (6.4) (3.2)
Depreciation ......................................................... 51.8 51.7 106.2 100.2
Reversal of provision for possible losses ............................ (2.0) (3.1) (5.2) (5.0)
Asset impairment charges ............................................. 1.3 1.0 3.4 1.1
Deferred income taxes ................................................ 15.4 (7.6) 26.8 2.5
Share of affiliates' earnings, net of dividends ...................... (15.4) (4.2) (32.3) (18.0)
Decrease (increase) in recoverable income taxes ...................... 1.9 58.5 (5.9) 58.0
Net increase (decrease) in operating lease payable ................... 22.2 19.7 (19.5) (11.5)
Other, including working capital ..................................... 6.3 (29.6) (18.3) (40.1)
------- ------- -------- ---------
Net cash provided by operating activities of continuing operations ... 105.8 103.7 95.0 105.7
INVESTING ACTIVITIES
Additions to equipment on lease, net of nonrecourse financing for leveraged
leases, operating lease assets and facilities ............................ (87.1) (251.5) (158.6) (323.0)
Loans extended ............................................................ -- (7.6) -- (13.9)
Investments in affiliated companies ....................................... (5.9) (3.1) (24.3) (3.1)
Progress payments ......................................................... (.5) (.7) (.9) (1.6)
Other investments ......................................................... (.7) (1.6) (4.7) (27.5)
------- ------- -------- ---------
Portfolio investments and capital additions ............................... (94.2) (264.5) (188.5) (369.1)
Portfolio proceeds ........................................................ 102.0 53.7 192.6 228.6
Proceeds from other asset sales ........................................... 5.9 8.9 212.2 20.9
Net decrease (increase) in restricted cash ................................ 3.6 (1.0) 2.9 .8
------- ------- -------- ---------
Net cash provided by (used in) investing activities of continuing
operations............................................................ 17.3 (202.9) 219.2 (118.8)
FINANCING ACTIVITIES
Net proceeds from issuance of debt ........................................ 327.4 71.7 327.4 84.1
Repayment of debt ......................................................... (381.0) (139.7) (523.4) (206.0)
Net decrease in commercial paper and bank credit facilities ............... (8.3) (.1) (58.3) (4.9)
Net decrease in capital lease obligations ................................. (.8) (1.6) (7.2) (16.2)
Issuance of common stock and other ........................................ 4.4 .9 8.6 1.1
Cash dividends ............................................................ (9.9) (9.9) (19.9) (19.7)
------- ------- -------- ---------
Net cash used in financing activities of continuing operations ....... (68.2) (78.7) (272.8) (161.6)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS .............. (.5) (.3) (.9) (.7)
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS, NET (SEE NOTE 12) ..... (.7) 170.3 8.3 180.8
------- ------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... $ 53.7 $ (7.9) $ 48.8 $ 5.4
======= ======= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. DESCRIPTION OF BUSINESS
GATX Corporation (GATX or the Company) is headquartered in Chicago,
Illinois and provides services primarily through three operating segments: GATX
Rail (Rail), GATX Air (Air), and GATX Specialty Finance (Specialty). GATX
specializes in railcar and locomotive leasing, aircraft operating leasing, and
financing other large-ticket equipment. In addition, GATX owns and operates a
fleet of self-unloading vessels on the Great Lakes through its wholly owned
subsidiary American Steamship Company (ASC).
GATX also invests in companies and joint ventures that complement its
existing business activities. GATX partners with financial institutions and
operating companies to improve scale in certain markets, broaden diversification
within asset classes, and enter new markets.
On June 30, 2004, GATX completed the sale of substantially all the assets
and related nonrecourse debt of GATX Technology Services and its Canadian
affiliate (Technology). The remaining assets, consisting primarily of interests
in two joint ventures, were sold prior to December 31, 2004. Financial data for
Technology has been segregated as discontinued operations for all periods
presented.
NOTE 2. BASIS OF PRESENTATION
The consolidated balance sheet at December 31, 2004 has been derived from
the audited financial statements at that date. All other consolidated financial
statements are unaudited but include all adjustments, consisting only of normal
recurring items which management considers necessary for a fair statement of the
consolidated results of operations, financial position and cash flow for the
respective periods.
Certain amounts in the 2004 financial statements have been reclassified to
conform to the current presentation, including the separate presentation and
reporting of discontinued operations.
NOTE 3. NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123(R) (revised 2004),
Share-Based Payments, which is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of
Cash Flows. Generally, SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement, establishes fair value as the measurement objective and
requires entities to apply a fair value-based measurement method in accounting
for share-based payment transactions. The statement applies to all awards
granted, modified, repurchased or cancelled after July 1, 2005, and unvested
portions of previously issued and outstanding awards. In April 2005, the
Securities and Exchange Commission issued Release No. 33-8568 which deferred the
effective date of SFAS 123(R) to the first interim or annual reporting period of
fiscal years beginning on or after June 15, 2005. GATX expects to implement SFAS
No. 123(R) on January 1, 2006.
In December 2004, the FASB issued FASB Staff Position (FSP) 109-2,
Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004 which introduced a
special one-time dividends received deduction on the repatriation of certain
foreign earnings to a United States taxpayer (repatriation provision) provided
certain criteria are met. The repatriation provision is available to GATX for
the year ended December 31, 2005. GATX has historically maintained that
undistributed earnings of its foreign subsidiaries and affiliates were intended
to be permanently reinvested in those foreign operations. GATX is currently
evaluating the effect of the repatriation provision on its plan for reinvestment
or repatriation of foreign earnings. The range of reasonably possible amounts of
unremitted earnings considered for repatriation, and the income tax effects of
such repatriation cannot be estimated with certainty at this time. It is
anticipated that the evaluation of the effect of the repatriation provision will
be completed during the third quarter of 2005.
Accounting for Certain Leveraged Leases - Prior to 2004, GATX entered into
two structured leasing investments that are accounted for in the consolidated
financial statements as leveraged leases in accordance with guidance provided in
SFAS No. 13, Accounting for Leases. This accounting guidance requires total
income over the term of a lease to be recognized on a proportionate basis in
those years in which the net investment in a lease is positive. The net
investment is based on net cash flows earned from the lease, including the
effect of related income taxes. During 2004, the Internal Revenue Service (IRS)
challenged the timing of certain tax deductions claimed with respect to these
transactions. GATX believes that its tax position related to these transactions
was proper, based upon applicable statutes, regulations and case law in effect
at the time the transactions were
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
initiated. GATX and the IRS have entered into a confidential closing agreement
with respect to one of the transactions and are conducting settlement
discussions with respect to the second transaction. However, resolution of this
matter has not concluded and may ultimately be litigated.
Under existing accounting guidance provided in SFAS No. 13, any changes in
estimates or assumptions not affecting estimated total net income from a
leveraged lease, including the timing of income tax cash flows, do not change
the timing of leveraged lease income recognition. On July 14, 2005, the FASB
issued proposed FASB Staff Position (FSP) No. FAS 13-a, Accounting for a Change
or Projected Change in the Timing of Cash Flows Relating to Income Taxes
Generated by a Leveraged Lease Transaction. The guidance in this proposal would
apply to all transactions classified as a leveraged lease in accordance with
FASB Statement No. 13, Accounting for Leases, and would require that the
expected timing of income tax cash flows generated by a leverage lease
transaction be reviewed annually or more frequently if events or changes in
circumstances indicate that a change in timing is probable of occurring. If
during the lease term the expected timing of income tax cash flows generated by
a leverage lease is revised, the rate of return and the allocation of income
would be recalculated from the inception of the lease following the methodology
provided in FASB Statement No.13, which may result in a one-time, non-cash
charge to earnings in the period of changed expectations. An equivalent amount
of any such adjustment would then be recognized as income over the remaining
term of the applicable leases; over the full term of these leases, cumulative
accounting income would not change. The proposed FSP is currently subject to a
comment period ending on September 12, 2005. The FSP is expected to be effective
as of the end of the first fiscal year ending after December 15, 2005. GATX
expects to implement the provisions of proposed FSP No. FAS 13-a in the fourth
quarter of 2005, the impact of which is not expected to be material to the
Company's consolidated financial position or results of operations for the
fiscal year 2005.
NOTE 4. INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies represent investments in, and loans to
and from, domestic and foreign companies and joint ventures that are in
businesses similar to those of GATX, such as commercial aircraft leasing, rail
equipment leasing, and other business activities, including ventures that
provide asset residual value guarantees in both domestic and foreign markets.
For purposes of preparing the following information, GATX made certain
adjustments to the information provided by the joint ventures. Pre-tax income
was adjusted to reverse interest expense recognized by the joint ventures on
loans from GATX.
For all affiliated companies held at the end of the quarter as part of
continuing operations, operating results, assuming GATX held a 100 percent
interest, would be (in millions):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ------------------------
2005 2004 2005 2004
-------- -------- ----------- --------
Revenues.......... $ 204.5 $ 166.5 $ 384.3 $ 332.7
Pre-tax income.... 57.6 37.4 103.4 70.5
NOTE 5. PENSION AND OTHER POST-RETIREMENT BENEFITS
The components of pension and other post-retirement benefit costs for the
three months ended June 30, 2005 and 2004 are as follows (in millions):
2005 PENSION 2004 PENSION 2005 RETIREE 2004 RETIREE
BENEFITS BENEFITS HEALTH AND LIFE HEALTH AND LIFE
------------ ------------ --------------- ---------------
Service cost...................................... $ 1.5 $ 1.8 $ .1 $ .2
Interest cost..................................... 5.7 5.8 1.1 1.2
Expected return on plan assets.................... (7.5) (7.7) -- --
Amortization of:
Unrecognized prior service cost................. .1 .1 -- --
Unrecognized net loss........................... .6 .4 .1 .3
---------- --------- -------- --------
Ongoing net costs................................. .4 .4 1.3 1.7
---------- --------- -------- --------
Recognized cost (gain) due to curtailment......... -- .7 -- (.2)
Recognized special termination benefits expense... -- .7 -- --
---------- --------- -------- --------
Net costs......................................... $ .4 $ 1.8 $ 1.3 $ 1.5
========== ========= ======== ========
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The components of pension and other post-retirement benefit costs for the
six months ended June 30, 2005 and 2004 are as follows (in millions):
2005 PENSION 2004 PENSION 2005 RETIREE 2004 RETIREE
BENEFITS BENEFITS HEALTH AND LIFE HEALTH AND LIFE
------------ ------------ --------------- ---------------
Service cost ..................................... $ 3.0 $ 3.6 $ .2 $ .3
Interest cost .................................... 11.4 11.6 2.2 2.4
Expected return on plan assets ................... (15.0) (15.4) -- --
Amortization of:
Unrecognized prior service cost ................ .2 .2 -- --
Unrecognized net loss .......................... 1.2 .8 .2 .5
--------- -------- -------- -------
Ongoing net costs ................................ .8 .8 2.6 3.2
--------- -------- -------- -------
Recognized cost (gain) due to curtailment ........ -- .7 -- (.2)
Recognized special termination benefits expense .. -- .7 -- --
--------- -------- -------- -------
Net costs ........................................ $ .8 $ 2.2 $ 2.6 $ 3.0
========= ======== ======== =======
The previous tables include amounts allocated to discontinued operations,
all of which are immaterial.
GATX uses a December 31 measurement date for all of its plans. The amounts
reported are based on estimated annual costs. Actual annual costs for the year
ending December 31, 2005 may differ from the estimates provided.
GATX expects to contribute approximately $2.8 million to its pension plans
(domestic and foreign) and approximately $8.1 million to its other
post-retirement benefit plans in 2005. Through June 30, 2005 contributions of
$1.0 million have been made to the foreign and domestic pension plans and
contributions of $3.9 million have been made to the other post-retirement
benefit plans.
NOTE 6. GUARANTEES
In connection with certain investments or transactions, GATX's
subsidiaries have provided guarantees which could potentially require
performance in the event of demands by third parties. Similar to GATX's balance
sheet investments, these guarantees expose GATX to credit, market, and equipment
risks; accordingly, GATX evaluates its commitments and other contingent
obligations using techniques similar to those used to evaluate funded
transactions.
The following table shows GATX's guarantees for continuing operations as
of (in millions):
JUNE 30, DECEMBER 31,
2005 2004
--------- ------------
Affiliate debt guarantees -- recourse to GATX................. $ 10.3 $ 12.4
Asset residual value guarantees............................... 401.0 437.6
Lease and loan payment guarantees............................. 54.2 57.0
--------- ---------
$ 465.5 $ 507.0
========= =========
7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At June 30, 2005, the maximum potential amount of lease, loan or asset residual
value guarantees under which GATX or its subsidiaries could be required to
perform was $465.5 million. The related carrying value of the guarantees
recorded on the balance sheet, including deferred revenue primarily associated
with asset residual value guarantees entered into prior to the effective date of
FASB Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, was a liability of $2.5 million. The expiration dates of these
guarantees range from 2005 to 2017. Any liability resulting from GATX's
performance pursuant to the asset residual value guarantees will be reduced by
the value realized from the underlying asset or group of assets. Historically,
gains associated with the asset residual value guarantees have exceeded any
losses incurred and are recorded in asset remarketing income in the consolidated
statements of income. Based on known facts and current market conditions,
management does not believe that the asset residual value guarantees will result
in any significant adverse financial impact to the Company. Accordingly, the
Company has not recorded any accrual for contingent losses with respect to the
asset residual value guarantees as of June 30, 2005. GATX believes these asset
residual value guarantees will likely generate future income in the form of fees
and residual sharing proceeds.
Asset residual value guarantees represent GATX's commitment to third
parties that an asset or group of assets will be worth a specified amount at the
end of a lease term. Revenue is earned for providing these asset value
guarantees in the form of an initial fee (which is amortized into income over
the guarantee period) and by sharing in any proceeds received upon disposition
of the assets to the extent such proceeds are in excess of the amount guaranteed
(which is recorded when realized).
Lease and loan payment guarantees generally involve guaranteeing repayment
of the financing utilized to acquire assets being leased by an affiliate to
customers, and are in lieu of making direct equity investments in the affiliate.
GATX is not aware of any event of default which would require it to satisfy
these guarantees, and expects the affiliates to generate sufficient cash flow to
satisfy their lease and loan obligations.
NOTE 7. VARIABLE INTEREST ENTITIES
GATX has ownership interests in certain investments that are considered
Variable Interest Entities (VIEs) in accordance with FASB Interpretation No.
46R, Consolidation of Variable Interest Entities (FIN 46R). However, GATX is not
a primary beneficiary with respect to any of the VIEs. As a result, GATX does
not consolidate these entities. GATX's maximum exposure to loss with respect to
these VIEs is approximately $251.2 million of which $222.6 million was the
aggregate carrying value of these investments recorded on the balance sheet at
June 30, 2005.
NOTE 8. COMPREHENSIVE INCOME
GATX includes foreign currency translation gains (losses), unrealized
gains (losses) on available-for-sale securities and unrealized gains (losses) on
certain qualified derivative instruments in comprehensive income. For the three
months ended June 30, 2005 and 2004, comprehensive income was $18.7 million and
$39.3 million, respectively. For the six months ended June 30, 2005 and 2004,
comprehensive income was $30.1 million and $59.8 million, respectively.
NOTE 9. INCENTIVE COMPENSATION PLANS
GATX grants stock-based awards to employees pursuant to established
compensation plans, as described more fully in its Annual Report on Form 10-K
for the year ended December 31, 2004. As permitted under SFAS No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure - an
amendment of SFAS No. 123, the Company accounts for all stock-based employee
compensation plans under the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Under these guidelines, no compensation expense is recognized,
because the exercise price of GATX's employee stock options equals the market
value of the underlying stock on the date of grant. See Note 3 relating to new
accounting pronouncements for additional information.
Pro forma information regarding net income and earnings per share is
required to be disclosed as if GATX had accounted for its employee stock options
using the fair value method under SFAS No. 123, Accounting for Stock-Based
Compensation. The Black-Scholes model, one of the most frequently referenced
models used 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.
8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value provisions of SFAS No. 123 to
stock-based employee compensation plans (in millions, except for per share
data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
2005 2004 2005 2004
--------- ---------- --------- -----------
Net income, as reported ............................. $ 34.9 $ 34.8 $ 63.3 $ 57.7
Add: Stock-based compensation expense, net of tax ... .6 .4 1.1 .6
Deduct: Total stock-based employee compensation
expense determined under the fair value-based
method for all awards, net of tax.................. (1.1) (.8) (2.1) (1.5)
-------- --------- -------- ----------
Pro forma net income................................. $ 34.4 $ 34.4 $ 62.3 $ 56.8
======== ========= ======== ==========
NET INCOME PER SHARE:
Basic, as reported .................................. $ .70 $ .71 $ 1.27 $ 1.17
Basic, pro forma .................................... .69 .70 1.25 1.15
Diluted, as reported ................................ .63 .66 1.15 1.09
Diluted, pro forma .................................. .62 .65 1.13 1.07
NOTE 10. EARNINGS PER SHARE
GATX has previously issued two convertible debt securities, one in 2002
for $175.0 million and the other in 2003 for $125.0 million. Shares underlying
$175.0 million of convertible securities issued in 2002 and the related interest
expense adjustment were excluded from the calculation of diluted earnings per
share for the three months and six months ended June 30, 2004 because of
antidilutive effects. These securities are convertible into common stock at a
price of $34.09 per share, which would result in 5,133,471 common shares issued
upon conversion.
Shares underlying $125.0 million of convertible securities issued in 2003
and the related interest expense were included in the calculation of diluted
earnings per share for each of the 2005 and 2004 periods in accordance with the
guidance provided in EITF 04-08. These securities are convertible into common
stock with a current conversion price of $24.23 per share, which would result in
5,158,042 common shares issued upon conversion. The conversion price is subject
to adjustment based on various factors, including changes in the dividend on
GATX's common stock. The conversion into common stock is subject to a number of
contingencies including the market price of GATX's common stock and the trading
price of the notes.
9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The following table sets forth the computation of basic and diluted net
income per common share (in millions, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ ------------------
2005 2004 2005 2004
------ ------ ------ ------
NUMERATOR:
Income from continuing operations ................. $ 34.5 $ 19.7 $ 62.9 $ 39.4
Income from discontinued operations ............... .4 15.1 .4 18.3
Less: Dividends paid and accrued on preferred
stock .................................. * * * *
------ ------ ------ ------
NUMERATOR FOR BASIC EARNINGS PER SHARE - INCOME
AVAILABLE TO COMMON SHAREHOLDERS 34.9 34.8 63.3 57.7
Effect of dilutive securities:
Add: Dividends paid and accrued on preferred
stock .................................... * * * *
After-tax interest expense on convertible
securities ............................... 3.2 1.0 6.4 2.0
------ ------ ------ ------
NUMERATOR FOR DILUTED EARNINGS PER SHARE - INCOME
AVAILABLE TO COMMON SHAREHOLDERS $ 38.1 $ 35.8 $ 69.7 $ 59.7
DENOMINATOR:
DENOMINATOR FOR BASIC EARNINGS PER SHARE - WEIGHTED
AVERAGE SHARES .................................... 49.9 49.3 49.8 49.3
Effect of dilutive securities:
Stock based incentive plans .................... .7 .2 .6 .2
Convertible preferred stock .................... .1 .1 .1 .1
Convertible debt securities .................... 10.3 5.2 10.3 5.2
------ ------ ------ ------
DENOMINATOR FOR DILUTED EARNINGS PER SHARE - ADJUSTED
WEIGHTED AVERAGE AND ASSUMED CONVERSION ........... 61.0 54.8 60.8 54.8
BASIC EARNINGS PER SHARE:
Income from continuing operations ................... $ .69 $ .40 $ 1.26 $ .80
Income from discontinued operations ................. .01 .31 .01 .37
------ ------ ------ ------
TOTAL BASIC EARNINGS PER SHARE $ .70 $ .71 $ 1.27 $ 1.17
====== ====== ====== ======
DILUTED EARNINGS PER SHARE:
Income from continuing operations ................... $ .62 $ .38 $ 1.14 $ .76
Income from discontinued operations ................. .01 .28 .01 .33
------ ------ ------ ------
TOTAL DILUTED EARNINGS PER SHARE $ .63 $ .66 $ 1.15 $ 1.09
====== ====== ====== ======
* Less than $.1 million.
10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 11. FINANCIAL DATA OF BUSINESS SEGMENTS
The financial data presented below conforms to SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, and depicts the
profitability, financial position and capital expenditures of each of GATX's
continuing business segments. Segment profitability is presented to reflect
operating results inclusive of allocated support expenses from the parent
company and estimated applicable interest costs. Technology's results are
classified as discontinued operations and not included in the financial data
presented below.
GATX provides services primarily through three operating segments: Rail,
Air and Specialty. Other is comprised of corporate results (including selling,
general and administrative (SG&A) expense and interest expense not allocated to
segments), and the results of ASC. Management evaluates the performance of each
segment based on several measures, including net income. These results are used
to assess performance and determine resource allocation among the segments.
GATX allocates certain corporate SG&A expenses to the segments. Corporate
SG&A expenses relate to administration and support functions performed at the
corporate office, such as information technology, human resources, legal,
financial support and executive costs. Directly attributable expenses are
generally allocated to the segments while shared costs are retained in Other.
Amounts allocated to the segments are approximated based on management's best
estimate and judgment of direct support services.
Debt balances and interest expense were allocated to each segment based
upon an assigned fixed leverage ratio incorporating both on and off balance
sheet assets across all reporting periods. In 2005, assigned fixed leverage,
expressed as a ratio of debt to equity was 4.5:1 for Rail, 3:1 for Air and 4:1
for Specialty; 2004 ratios were 5:1 for Rail, 4:1 for Air and 4:1 for Specialty.
Unallocated debt and related interest expense was assigned to Other in each
period. Management believes this leverage and interest expense allocation
methodology gives an accurate indication of each operating segment's
risk-adjusted financial return. The reduction to the 2005 leverage assumptions
at Rail and Air reflect the Company's lower consolidated leverage position.
The following tables present certain segment data for the three and six
months ended June 30, 2005 and 2004 (in millions):
RAIL AIR SPECIALTY OTHER INTER-SEGMENT TOTAL
-------- -------- --------- ------- ------------- -------
THREE MONTHS ENDED JUNE 30, 2005
Revenues ......................................... $ 198.5 $ 30.3 $ 34.1 $ 36.1 $ -- $ 299.0
Share of affiliates' earnings .................... 6.9 11.8 12.6 -- -- 31.3
-------- -------- -------- ------ -------- --------
Total gross income ............................... 205.4 42.1 46.7 36.1 -- 330.3
Depreciation ..................................... 31.5 14.9 1.0 2.0 -- 49.4
Interest, net .................................... 19.5 14.4 5.2 1.7 -- 40.8
Operating lease expense .......................... 44.7 5.4 .9 -- (.1) 50.9
Income (loss) from continuing operations before
income taxes .................................. 36.4 (.1) 38.5 (20.7) .1 54.2
Income (loss) from continuing operations ......... 23.1 -- 23.8 (12.5) .1 34.5
-------- -------- -------- ------ -------- --------
SELECTED BALANCE SHEET DATA AT JUNE 30, 2005
Investments in affiliated companies .............. 101.3 536.8 175.9 -- -- 814.0
Identifiable assets from continuing operations ... 2,531.0 1,995.7 432.2 466.0 (60.9) 5,364.0
-------- -------- -------- ------ -------- --------
CASH FLOW
Portfolio investments and capital additions ...... 80.5 2.3 9.5 1.9 -- 94.2
-------- -------- -------- ------ -------- --------
11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
RAIL AIR SPECIALTY OTHER INTER-SEGMENT TOTAL
------- ------- --------- -------- ------------- -------
THREE MONTHS ENDED JUNE 30, 2004
Revenues ......................................... $ 179.6 $ 29.0 $ 22.1 $ 35.9 $ -- $ 266.6
Share of affiliates' earnings .................... 6.0 6.4 4.0 -- -- 16.4
-------- -------- ------- ------- ------ --------
Total gross income ............................... 185.6 35.4 26.1 35.9 -- 283.0
Depreciation ..................................... 30.8 14.5 1.0 2.0 -- 48.3
Interest, net .................................... 18.1 9.0 6.6 6.2 -- 39.9
Operating lease expense .......................... 41.4 1.0 1.1 -- -- 43.5
Income (loss) from continuing operations before
income taxes ................................... 25.1 4.3 15.4 (17.5) -- 27.3
Income (loss) from continuing operations ......... 18.7 2.6 9.1 (10.7) -- 19.7
-------- -------- ------- ------- ------ --------
SELECTED BALANCE SHEET DATA AT DECEMBER 31, 2004
Investments in affiliated companies .............. 102.5 473.8 142.3 -- -- 718.6
Identifiable assets from continuing operations ... 2,721.2 2,086.4 477.4 372.9 (56.4) 5,601.5
-------- -------- ------- ------- ------ --------
CASH FLOW
Portfolio investments and capital additions ...... 156.9 97.4 9.2 1.0 -- 264.5
-------- -------- ------- ------- ------ --------
RAIL AIR SPECIALTY OTHER INTER-SEGMENT TOTAL
------- ------- --------- -------- ------------- -------
SIX MONTHS ENDED JUNE 30, 2005
Revenues ......................................... $ 399.4 $ 63.6 $ 51.4 $ 41.6 $ -- $ 556.0
Share of affiliates' earnings .................... 10.0 22.2 22.0 -- -- 54.2
-------- -------- -------- ------- --------- --------
Total gross income ............................... 409.4 85.8 73.4 41.6 -- 610.2
Depreciation ..................................... 66.6 30.6 2.0 2.0 -- 101.2
Interest, net .................................... 42.1 27.7 10.1 2.6 -- 82.5
Operating lease expense .......................... 86.7 5.9 2.0 -- (.2) 94.4
Income (loss) from continuing operations before
income taxes ................................... 66.2 6.9 54.7 (30.6) .2 97.4
Income (loss) from continuing operations ......... 43.1 4.8 33.8 (18.9) .1 62.9
-------- -------- -------- ------- --------- --------
SELECTED BALANCE SHEET DATA AT JUNE 30, 2005
Investments in affiliated companies .............. 101.3 536.8 175.9 -- -- 814.0
Identifiable assets from continuing operations ... 2,531.0 1,995.7 432.2 466.0 (60.9) 5,364.0
-------- -------- -------- ------- --------- --------
CASH FLOW
Portfolio investments and capital additions ...... 150.6 2.9 31.6 3.4 -- 188.5
-------- -------- -------- ------- --------- --------
RAIL AIR SPECIALTY OTHER INTER-SEGMENT TOTAL
------- ------- --------- -------- ------------- -------
SIX MONTHS ENDED JUNE 30, 2004
Revenues ......................................... $ 357.5 $ 52.3 $ 53.6 $ 43.4 $ -- $ 506.8
Share of affiliates' earnings .................... 9.8 15.6 8.6 -- -- 34.0
-------- -------- ------- ------- --------- --------
Total gross income ............................... 367.3 67.9 62.2 43.4 -- 540.8
Depreciation ..................................... 61.0 28.3 2.1 2.0 -- 93.4
Interest, net .................................... 34.9 18.3 14.1 11.1 -- 78.4
Operating lease expense .......................... 83.1 2.0 2.1 -- -- 87.2
Income (loss) from continuing operations before
income taxes ................................... 44.5 7.1 40.3 (34.0) -- 57.9
Income (loss) from continuing operations ......... 31.4 4.6 25.0 (21.6) -- 39.4
-------- -------- ------- ------- --------- --------
SELECTED BALANCE SHEET DATA AT DECEMBER 31, 2004
Investments in affiliated companies .............. 102.5 473.8 142.3 -- -- 718.6
Identifiable assets from continuing operations ... 2,721.2 2,086.4 477.4 372.9 (56.4) 5,601.5
-------- -------- ------- ------- --------- --------
CASH FLOW
Portfolio investments and capital additions ...... 251.0 98.4 18.1 1.6 -- 369.1
-------- -------- ------- ------- --------- --------
12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 12. DISCONTINUED OPERATIONS
Consistent with GATX's strategy of focusing on the Company's core
businesses, GATX sold its Technology business during 2004. On June 30, 2004,
GATX completed the sale of substantially all the assets and related nonrecourse
debt of Technology and its Canadian affiliate. The remaining assets, consisting
primarily of interests in two joint ventures, were sold prior to December 31,
2004. Financial data for Technology has been segregated as discontinued
operations for all periods presented.
The following table summarizes the revenues, income before taxes and
operating results of Technology, which has been reclassified to discontinued
operations for all periods presented (in millions):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ----------------
2005 2004 2005 2004
---------- -------- ------ -------
Gross income........................... $ .8 $ 47.9 $ 1.2 $ 98.1
Income before taxes.................... .8 25.2 .8 30.3
Operating income, net of tax........... .4 15.5 .4 18.7
Loss on sale of segment, net of tax.... -- (.4) -- (.4)
The following tables summarize the components of discontinued operations
reported on the consolidated statements of cash flows (in millions):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ----------------
2005 2004 2005 2004
---------- -------- ------ -------
OPERATING ACTIVITIES
Net cash (used in) provided by operating activities ..... $ (.8) $ 22.6 $ (.8) $ 57.1
INVESTING ACTIVITIES
Portfolio investments and capital additions ............. -- (60.2) -- (128.6)
Portfolio proceeds ...................................... -- 45.1 -- 93.5
Net proceeds from sale of segment ....................... .1 214.7 9.1 214.7
--- ------ ----- -------
Net cash provided by investing activities ............... .1 199.6 9.1 179.6
FINANCING ACTIVITIES
Net proceeds from issuance of debt ...................... -- 19.0 -- 76.4
Repayment of debt ....................................... -- (70.9) -- (132.3)
--- ------ ----- -------
Net cash used in financing activities ................... -- (51.9) -- (55.9)
--- ------ ----- -------
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS, NET ... $ (.7) $170.3 $ 8.3 $ 180.8
===== ====== ===== =======
In the six month period ended June 30, 2005, Technology received final
distributions totaling $9.1 million associated with the 2004 sale of a joint
venture interest.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following Management's Discussion and Analysis should be read in
conjunction with the unaudited financial statements included herein. Certain
statements may constitute forward-looking statements made pursuant to the safe
harbor provision of the Private Securities Litigation Reform Act of 1995. These
statements are identified by words such as "anticipate," "believe," "estimate,"
"expect," "intend," "predict," or "project" and similar expressions. This
information may involve risks and uncertainties that could cause actual results
to differ materially from the forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
based on reasonable assumptions, such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Risks and uncertainties include, but are not limited to general
economic conditions; lease rates, utilization levels and operating costs in
GATX's primary asset segments; conditions in the capital markets; changes in
GATX's or GATX Financial Corporation's credit ratings; dynamics affecting
companies within the markets served by GATX; regulatory rulings that may impact
the economic value and operating costs of assets; competitive factors in GATX's
primary markets including lease pricing and asset availability; changes in loss
provision levels within GATX's portfolio; impaired asset charges that may result
from changing market conditions or portfolio management decisions implemented by
GATX; the outcome of pending or threatened litigation and general market
conditions in the rail, air, marine and other large-ticket industries. Other
factors and unanticipated events could adversely affect our business operations
and financial performance. We discuss certain of these matters more fully, as
well as certain risk factors that may affect our business operations, financial
condition and results of operations, in other of our filings with the SEC,
including our Annual Report on Form 10-K. These risks, uncertainties and other
factors should be carefully considered in evaluating the forward-looking
statements. The forward-looking statements included in this Quarterly Report are
made only as of the date of this report, and we undertake no obligation to
update these forward-looking statements to reflect subsequent events or
circumstances.
BUSINESS OVERVIEW
GATX Corporation (GATX or the Company) is headquartered in Chicago,
Illinois and provides services primarily through three operating segments: GATX
Rail (Rail), GATX Air (Air), and GATX Specialty Finance (Specialty). GATX
specializes in railcar and locomotive leasing, aircraft operating leasing, and
financing other large-ticket equipment. In addition, GATX owns and operates a
fleet of self-unloading vessels on the Great Lakes through its wholly owned
subsidiary American Steamship Company (ASC).
On June 30, 2004, GATX completed the sale of substantially all the assets
and related nonrecourse debt of GATX Technology Services and its Canadian
affiliate (Technology). The remaining assets consisting primarily of interests
in two joint ventures were sold prior to December 31, 2004. Financial data for
Technology has been segregated as discontinued operations for all periods
presented.
Operating results for the six months ended June 30, 2005 are not
necessarily indicative of the results that may be achieved for the entire year
ending December 31, 2005. For further information, refer to GATX's Annual Report
on Form 10-K for the year ended December 31, 2004.
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains certain non-GAAP (Generally Accepted Accounting
Principles) financial measures. See "Non-GAAP Financial Measures" for additional
information including definitions of terms and reconciliations to related GAAP
components.
RISK FACTORS
For a list of GATX's risk factors, refer to the Annual Report on Form 10-K
for the year ended December 31, 2004.
Circumstances and conditions may change. Accordingly, additional risks and
uncertainties not presently known, or that GATX currently deems immaterial, may
also adversely affect GATX's business operations.
14
FINANCIAL SUMMARY
The following table presents income from continuing operations and net
income by segment for the three and six month periods ended June 30 (in
millions):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
2005 2004 2005 2004
-------- -------- -------- --------
Rail ................................. $ 23.1 $ 18.7 $ 43.1 $ 31.4
Air .................................. -- 2.6 4.8 4.6
Specialty ............................ 23.8 9.1 33.8 25.0
Other ................................ (12.5) (10.7) (18.9) (21.6)
Intersegment ......................... .1 -- .1 --
------- ------- ------- -------
Income from continuing operations .. 34.5 19.7 62.9 39.4
Discontinued operations .............. 4 15.1 .4 18.3
------- ------- ------- -------
Net income ......................... $ 34.9 $ 34.8 $ 63.3 $ 57.7
------- ------- ------- -------
FINANCIAL PERFORMANCE MEASURES
The following table presents financial measures and ratios based on
financial data derived from the financial statements and non-GAAP components.
For additional information see Non-GAAP Financial Performance Measures. The
Company uses these financial measures and ratios to analyze the Company's
underlying financial performance from period to period. All amounts and ratios
are based on continuing operations and are shown for the trailing 12-month
periods ended June 30:
2005 2004
----- -----
Return on equity........... 17.9% 9.5%
Return on assets........... 2.7% 1.2%
SG&A efficiency ratio...... 1.71% 1.74%
The 2005 trailing 12-month return measures were positively affected by
non-operating events that occurred in the second half of 2004, including a gain
from the sale of the Staten Island property, insurance recoveries and tax
benefits.
15
COMPARISON OF SIX MONTHS AND THREE MONTHS RESULTS OF OPERATIONS BY BUSINESS
SEGMENT
GATX RAIL
Components of Rail's income statement are summarized below (in millions):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- --------------------
2005 2004 2005 2004
GROSS INCOME
Lease income .................................. $180.5 $160.2 $358.8 $319.6
Asset remarketing income ...................... 1.3 1.7 8.2 6.1
Gain on sale of securities .................... .5 -- .5 --
Fees .......................................... .4 .9 .9 1.9
Other ......................................... 15.8 16.8 31.0 29.9
------ ------ ------ ------
Revenues ...................................... 198.5 179.6 399.4 357.5
Share of affiliates' earnings ................. 6.9 6.0 10.0 9.8
------ ------ ------ ------
TOTAL GROSS INCOME ............................ 205.4 185.6 409.4 367.3
OWNERSHIP COSTS
Depreciation .................................. 31.5 30.8 66.6 61.0
Interest, net ................................. 19.5 18.1 42.1 34.9
Operating lease expense ....................... 44.7 41.4 86.7 83.1
------ ------ ------ ------
TOTAL OWNERSHIP COSTS ......................... 95.7 90.3 195.4 179.0
OTHER COSTS AND EXPENSES
Maintenance expenses .......................... 45.5 45.6 93.7 91.5
Other operating expenses ...................... 9.8 7.7 17.9 18.7
Selling, general and administrative expenses .. 17.3 16.9 35.3 33.4
(Reversal) provision for possible losses ...... (.2) -- (1.0) .2
Asset impairment charges ...................... .9 -- 1.9 --
------ ------ ------ ------
TOTAL OTHER COSTS AND EXPENSES ................ 73.3 70.2 147.8 143.8
------ ------ ------ ------
INCOME BEFORE INCOME TAXES .................... 36.4 25.1 66.2 44.5
INCOME TAXES .................................. 13.3 6.4 23.1 13.1
------ ------ ------ ------
NET INCOME .................................... $ 23.1 $ 18.7 $ 43.1 $ 31.4
====== ====== ====== ======
FINANCIAL PERFORMANCE MEASURES FOR RAIL
The following table summarizes the performance measures for the trailing
12-month periods ended June 30 ($'s in millions):
2005 2004
---------- -------------
Return on assets........... 1.9% 1.7%
SG&A efficiency ratio...... 1.89% 1.89%
On balance sheet assets.... $ 2,531.0 $ 2,555.5
Off-balance sheet assets... $ 1,265.5 $ 1,178.2
Total assets............... $ 3,796.5 $ 3,733.7
For additional information see Non-GAAP Financial Performance Measures
16
RAIL'S FLEET DATA
The following table summarizes fleet activity for GATX's wholly owned
North American rail cars for the six months ended June 30:
Railcar rollforward: 2005 2004
- ------------------------- --------- --------
Beginning balance........ 106,819 105,248
Cars added............... 2,120 3,768
Cars scrapped or sold.... (2,386) (2,656)
------- -------
Ending balance........... 106,553 106,360
Utilization rate......... 97.9% 96.2%
SUMMARY
Market conditions in North America continued to improve, favorably
impacting Rail's North American operations. Market indicators, such as car
loadings and ton miles, were up from the comparable prior year period. Rail has
more cars on lease and is realizing higher rental rates. European market
conditions are stable and Rail has benefited from success in new markets and an
increase in the number of cars on lease. The transition of the DEC business
model from trip leasing to operating leasing in Poland has been completed, and
DEC is achieving SG&A savings associated with this change.
In the first six months of 2005, Rail invested $150.6 million, acquiring
approximately 2,120 cars in North America. The impact of higher new car prices
and competition for secondary market acquisitions were limiting factors in the
number of attractive investment opportunities.
Year to date net income of $43.1 million in 2005 increased $11.7 million
from the prior year period, and second quarter income of $23.1 million increased
$4.4 million from the prior year quarter. Improvement in both year to date and
second quarter results was driven primarily by higher lease income due to
increasing rates and more active cars on lease. These factors were partially
offset by higher ownership costs.
In the fourth quarter of 2004, Rail acquired the remaining 50% ownership
interest of the Locomotive Leasing Partners, LLC joint venture (LLP). As a
result, LLP's results are now included in Rail's consolidated financial
statements. The impact of this acquisition was not material to Rail's 2005 net
income as compared to the prior year.
COMPARISON OF FIRST SIX MONTHS OF 2005 TO FIRST SIX MONTHS OF 2004
GROSS INCOME
Gross income for the first six months of 2005 increased to $409.4 million,
compared to $367.3 million in the prior year period. Additional cars on lease
and higher lease rates drove this improvement.
Lease income increased $39.2 million to $358.8 million in the first six
months of 2005, including a $12.5 million contribution from LLP. Secondary
market acquisitions and new railcar investments made throughout 2004 and 2005
drove the significant increase in active car counts resulting in a corresponding
increase in lease income. On average, Rail had approximately 4,000 more active
cars during the first six months of 2005 compared to the same period in 2004.
North American utilization improved to 98% at June 30, 2005 representing
approximately 104,400 railcars on lease compared to 96% at June 30, 2004 with
approximately 102,300 railcars on lease. During the second half of 2004, Rail
began to experience increases in average renewal rates as compared to the
average expiring rate on a basket of its most common car types. This trend
continued in the first and second quarters of 2005 as average renewal rates
within the basket increased approximately 9% and 15%, respectively compared to
the average expiring rate.
European lease income was favorable to the prior year period due to an
increase in the number of cars on lease resulting from the placement of new car
deliveries throughout 2004. European market conditions continue to be stable and
utilization and rate trends are expected to remain positive throughout the
balance of 2005.
17
Asset remarketing income includes gains from the sale of assets from
Rail's own portfolio as well as residual sharing fees from the sale of managed
assets. Asset remarketing income of $8.2 million increased $2.1 million from the
prior year period due primarily to the sale of approximately 500 more railcars
in 2005.
Other income of $31.0 million increased $1.1 million over the prior period
due to increased railcar repair revenue, primarily from third party customers
and railroads. This was partially offset by lower scrapping gains due to fewer
railcars scrapped. Full year scrapping gains are expected to be lower than the
prior year as fewer cars are anticipated to be scrapped and scrap steel prices
have recently declined.
Share of affiliates' earnings of $10.0 million were $.2 million higher
than the prior year period. Excluding LLP's earnings of $2.1 million in 2004,
share of affiliates' earnings were $2.3 million higher than the prior year
period. The increase was the result of favorable market conditions at both
domestic and foreign joint ventures and larger asset remarketing gains within
domestic joint ventures.
OWNERSHIP COSTS
Ownership costs increased to $195.4 million in the 2005 period compared to
$179.0 million in 2004. Both depreciation and interest expense were higher due
to railcar additions and the acquisition and full consolidation of LLP's
operations. Higher average interest rates also impacted interest expense.
OTHER COSTS AND EXPENSES
Maintenance expense of $93.7 million increased $2.2 million from the prior
year period due to a larger active fleet and implementation of Association of
American Railroad rules for wheel replacements. In the coming quarters, Rail
expects to undertake a number of railcar conversions, a process of retrofitting
or overhauling cars that enables these cars to be used in different service.
This will have a positive long-term financial impact, but will increase
maintenance expense in the near term.
POTENTIAL RAILCAR REGULATORY MANDATES
The entire railroad industry, including Rail, faces the increasing
possibility that additional security or safety legislation or regulations may be
mandated, increasing future maintenance costs. Well publicized railroad
derailments, some of which involved GATX railcars, have focused attention on
safety issues associated with the transportation of hazardous materials. These
incidents have led to calls for increased regulation to address safety and
security issues associated with the transportation of hazardous materials.
Suggested remedial measures vary, but include rerouting hazardous material
railcar movements, increasing the inspection authority of the Federal Railroad
Administration ("FRA"), addressing the physical condition of tank cars, and
revising manufacturing specifications for high pressure tank cars which carry
hazardous materials. Specific focus has been directed at pressurized railcars
built prior to 1989 that were manufactured with non-normalized steel. The
National Transportation Safety Board ("NTSB") issued a report in 2004
recommending that the FRA conduct a comprehensive analysis to determine the
impact resistance of pressurized tank cars built prior to 1989, use the results
of that analysis to rank cars according to risk and to implement measures to
eliminate or mitigate such risks. To date, the NTSB has not recommended that
pressure cars built prior to 1989 be removed from service, nor has the FRA
issued any orders curtailing use of these cars. In addition, legislation has
been introduced at the state and Federal level, which if adopted, would affect
pressurized tank cars manufactured before 1989 for use in the transportation of
hazardous materials. Specifically, in July 2005, federal legislation was passed
in the U.S. House of Representatives and Senate and sent to the President for
approval, which requires the FRA to (1) within one year validate a predictive
model to quantify the relevant dynamic forces acting on railroad tank cars under
accident conditions, (2) within eighteen months initiate rulemaking to develop
and implement appropriate design standard for pressurized tank cars and (3)
within one year conduct a comprehensive analysis to determine the impact
resistance of steel shells of pre-1989 built pressurized tank cars. The Company
owns or leases approximately 5,700 pre-1989 built pressurized tank cars in North
America (5% of its North American fleet). While the Company is actively working
with trade associations and others to participate in the legislative and
regulatory process affecting rail transportation of hazardous materials, the
outcome of proposed remedial measures, the probability of adoption of such
measures, and the resulting impact on GATX should such measures be adopted
cannot be reasonably determined at this time.
TAXES
See "Consolidated Income Taxes" for a discussion of GATX's consolidated
income tax expense.
18
COMPARISON OF SECOND QUARTER 2005 TO SECOND QUARTER 2004
GROSS INCOME
Rail's second quarter 2005 gross income increased to $205.4 million,
compared to $185.6 million in the prior year period. Additional cars on lease,
higher lease rates and higher share of affiliates' earnings all contributed to
this improvement.
Second quarter 2005 lease income increased $20.3 million to $180.5
million, including a $6.4 million contribution from LLP. Secondary market
acquisitions and new railcar investments made throughout 2004 and the first
quarter of 2005 drove the significant increase in active car counts resulting in
a corresponding increase in lease income. On average, Rail had approximately
3,700 more active cars during the second quarter of 2005 compared to the same
period in 2004. During the second quarter of 2005 average renewal rates within a
basket of common cars increased approximately 15% compared to the average
expiring rate.
European lease income was favorable to the prior year period due to an
increase in the number of cars on lease resulting from the placement of new car
deliveries throughout 2004 and growth in new markets.
Share of affiliates' earnings of $6.9 million were $.9 million higher than
the prior year period. Excluding LLP's earnings of $.7 million in 2004, share of
affiliates' earnings were $1.6 million higher than the prior year period. The
increase was the result of favorable market conditions at both domestic and
foreign joint ventures and higher asset remarketing gains within the joint
ventures.
OWNERSHIP COSTS
Ownership costs increased to $95.7 million in the 2005 period compared to
$90.3 million in 2004. Both depreciation and interest expense were higher due to
railcar additions and the acquisition of LLP. Higher average interest rates in
2005 also impacted interest expense.
OTHER COSTS AND EXPENSES
Maintenance expense of $45.5 million in the second quarter of 2005 was
comparable to the second quarter 2004. North American costs were favorable to
prior period due to fewer cars repaired and the absence of bolster replacement
work. This was partially offset by increased costs associated with the European
fleet.
19
GATX AIR
Components of Air's income statement are summarized below (in millions):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -----------------------
2005 2004 2005 2004
----------- --------- --------- ---------
GROSS INCOME
Lease income................................... $ 28.1 $ 24.7 $ 57.9 $ 45.3
Interest income................................ .2 .1 .3 .2
Asset remarketing income....................... .1 .2 1.1 .4
Fees........................................... 1.9 3.4 4.1 5.1
Other.......................................... -- .6 .2 1.3
----------- --------- --------- ---------
Revenues....................................... 30.3 29.0 63.6 52.3
Share of affiliates' earnings.................. 11.8 6.4 22.2 15.6
----------- --------- --------- ---------
TOTAL GROSS INCOME............................. 42.1 35.4 85.8 67.9
OWNERSHIP COSTS
Depreciation................................... 14.9 14.5 30.6 28.3
Interest, net.................................. 14.4 9.0 27.7 18.3
Operating lease expense........................ 5.4 1.0 5.9 2.0
----------- --------- --------- ---------
TOTAL OWNERSHIP COSTS.......................... 34.7 24.5 64.2 48.6
OTHER COSTS AND EXPENSES
Maintenance expenses........................... .1 1.1 .5 1.3
Other operating expenses....................... .4 .4 .8 .8
Selling, general and administrative expenses... 7.1 5.1 13.8 10.5
Reversal of provision for possible losses...... (.1) -- (.4) (.4)
----------- --------- --------- ---------
TOTAL OTHER COSTS AND EXPENSES................. 7.5 6.6 14.7 12.2
----------- --------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES.............. (.1) 4.3 6.9 7.1
INCOME TAX (BENEFIT) PROVISION................. (.1) 1.7 2.1 2.5
----------- --------- --------- ---------
NET INCOME..................................... $ -- $ 2.6 $ 4.8 $ 4.6
=========== ========= ========= =========
FINANCIAL PERFORMANCE MEASURES FOR AIR
The following table summarizes the performance measures for the trailing
12-month periods ended June 30 ($'s in millions):
2005 2004
----------- ----------
Return on assets............................................ .5% .5%
SG&A efficiency ratio....................................... .63% .57%
On balance sheet assets..................................... $ 1,995.7 $ 2,032.6
Off-balance sheet assets.................................... $ 28.4 $ 28.4
Total assets................................................ $ 2,024.1 $ 2,061.0
For additional information see Non-GAAP Financial Performance Measures
20
AIR'S FLEET DATA
The following table summarizes information on GATX owned and managed
aircraft for the six months ended or as of June 30 ($'s in millions):
2005 2004
--------- --------
Utilization by net book value of owned aircraft.............. 99.9% 97.3%
Number of owned aircraft*.................................... 155 163
Number of managed aircraft................................... 66 71
Non-performing assets........................................ $ 21.3 $ --
Impairments and net charge-offs.............................. $ -- $ --
* Includes wholly-owned and partnered aircraft
SUMMARY
Air benefited from an improving worldwide operating environment relative
to recent periods, with increasing year-over-year passenger traffic growth in
Europe, Asia, and the Americas. Lease rates continue to recover from the low
levels of recent years, especially for newer aircraft which comprise a majority
of Air's fleet. Utilization continues to be high, with the owned fleet
effectively fully utilized.
Although traffic has rebounded from post -September 11, 2001 lows, the
recovery is fragile and is threatened by the high cost of jet fuel and the
possibility of airline failures. Because of these factors, Air continues to
actively monitor the risk of lessee defaults and asset impairments. United
States carriers are particularly vulnerable, as the combination of high fuel
prices and low yields has increased operating losses and contributed to
uncertainty with respect to the financial stability of major airlines. Air
continues to have limited exposure to domestic carriers, with 8% of its total
aircraft investment in the United States as of June 30, 2005.
In April 2005, Air sold a 50% interest in a A319-100 aircraft in
connection with the formation of a new joint venture. A 50% interest in three
other aircraft, two 737-800's and one 737-700, had been sold to the joint
venture from Air's portfolio in the first quarter of 2005.
Net income of $4.8 million for the six month period increased $.2 million
compared to the prior year period and break even results for the second quarter
were $2.6 million lower compared to the prior year quarter. Both six months and
three months results include a one-time operating lease charge of $4.8 million
related to the restructuring of a lease with a bankrupt carrier, ATA Holdings.
COMPARISON OF FIRST SIX MONTHS OF 2005 TO FIRST SIX MONTHS OF 2004
GROSS INCOME
Air's gross income of $85.8 million was $17.9 million higher than the
prior year period. The increase was primarily driven by higher lease income and
share of affiliates' earnings. Lease income of $57.9 million increased $12.6
million from the prior year period attributable in part to higher rents on
variable rate leases. Comparability between periods is impacted by the
acquisition and disposition of aircraft and timing of lease transitions in each
year and the transfer of four aircraft to a newly formed partnership in 2005.
Share of affiliates' earnings of $22.2 million was $6.6 million higher than the
prior year period and reflected improved rental rates, earnings from a new joint
venture and continued strong performance at Air's engine leasing joint venture.
The 2005 period also benefited from the favorable resolution and the reversal of
repossession expense accruals on five aircraft that had been leased to a
European carrier which declared bankruptcy in 2004.
OWNERSHIP COSTS
Ownership costs of $64.2 million were $15.6 million higher than the prior
year period. The increase was primarily due to higher average interest rates and
higher operating lease expense from a non-recurring $4.8 million loss on a
restructured sublease to ATA Holdings.
21
OTHER COSTS AND EXPENSES
Total other costs and expenses of $14.7 million were $2.5 million higher
than the prior year period. The increase from the prior year period was
primarily attributable to lower aircraft acquisition activity, which reduced the
amount of SG&A expenses that were capitalizable in 2005. Maintenance expense was
$.8 million lower due to a reduced number of aircraft lease transitions and
related maintenance events during the current year period.
TAXES
See "Consolidated Income Taxes" for a discussion of GATX's consolidated
income tax expense.
COMPARISON OF SECOND QUARTER 2005 TO SECOND QUARTER 2004
GROSS INCOME
Air's gross income of $42.1 million was $6.7 million higher than the prior
year period. The increase was primarily driven by higher lease income and share
of affiliates' earnings. Lease income of $28.1 million increased $3.4 million
from the prior year period attributable in part to higher rents on variable rate
leases. Comparability between periods is impacted by the acquisition and
disposition of aircraft and timing of lease transitions in each year and the
transfer of four aircraft to a newly formed partnership in 2005. Share of
affiliates' earnings of $11.8 million was $5.4 million higher than the prior
year period and reflected improved rental rates, earnings from a new joint
venture, continued strong performance at Air's engine leasing joint venture, and
the reversal of repossession expense accruals on five aircraft that had been
leased to a European carrier which had declared bankruptcy in 2004.
OWNERSHIP COSTS
Ownership costs of $34.7 million were $10.2 million higher than the prior
year period. The increase was primarily due to higher average interest rates on
direct and allocated debt and higher operating lease expense from a
non-recurring $4.8 million loss on a restructured sublease to ATA Holdings.
OTHER COSTS AND EXPENSES
Total other costs and expenses of $7.5 million were $.9 million higher
than the prior year period. The increase from the prior year period was
primarily attributable to lower aircraft acquisition activity, which reduced the
amount of SG&A expenses that were capitalizable in 2005. Maintenance expense was
$1.0 million lower due to a reduced number of aircraft lease transitions and
related maintenance events during the current year period.
22
GATX SPECIALTY FINANCE
Components of Specialty's income statement are summarized below (in millions):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
GROSS INCOME
Lease income................................... $ 7.8 $ 7.6 $ 15.4 $ 14.7
Interest income................................ 2.6 3.8 4.4 12.2
Asset remarketing income....................... 21.0 6.7 23.5 20.6
Gain on sale of securities..................... 1.0 2.1 5.9 3.2
Fees........................................... 1.2 .8 2.1 1.7
Other.......................................... .5 1.1 .1 1.2
--------- --------- --------- ---------
Revenues....................................... 34.1 22.1 51.4 53.6
Share of affiliates' earnings.................. 12.6 4.0 22.0 8.6
--------- --------- --------- ---------
TOTAL GROSS INCOME............................. 46.7 26.1 73.4 62.2
OWNERSHIP COSTS
Depreciation................................... 1.0 1.0 2.0 2.1
Interest, net.................................. 5.2 6.6 10.1 14.1
Operating lease expense........................ .9 1.1 2.0 2.1
--------- --------- --------- ---------
TOTAL OWNERSHIP COSTS.......................... 7.1 8.7 14.1 18.3
OTHER COSTS AND EXPENSES
Maintenance expenses........................... .2 .4 .7 .6
Other operating expenses....................... 1.9 1.4 3.6 2.6
Selling, general and administrative expenses... 1.6 2.2 3.5 5.1
Reversal of provision for possible losses...... (.9) (3.1) (2.3) (4.8)
Asset impairment charges....................... .4 .7 1.5 .8
Fair value adjustments for derivatives......... (2.1) .4 (2.4) (.7)
--------- --------- --------- ---------
TOTAL OTHER COSTS AND EXPENSES................. 1.1 2.0 4.6 3.6
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES..................... 38.5 15.4 54.7 40.3
INCOME TAXES................................... 14.7 6.3 20.9 15.3
--------- --------- --------- ---------
NET INCOME..................................... $ 23.8 $ 9.1 $ 33.8 $ 25.0
========= ========= ========= =========
FINANCIAL PERFORMANCE MEASURES FOR SPECIALTY FINANCE ($'S IN MILLIONS)
The following table summarizes the performance measures for the trailing
12-month periods ended June 30 ($'s in millions):
2005 2004
------------ -----------
Return on assets....................................... 9.8% 6.2%
SG&A efficiency ratio.................................. .57% .79%
On balance sheet assets................................ $ 432.2 $ 552.2
Off-balance sheet assets............................... $ 11.8 $ 13.3
Total assets........................................... $ 444.0 $ 565.5
For additional information see Non-GAAP Financial Performance Measures
23
SPECIALTY'S PORTFOLIO DATA
The following table summarizes information on the owned and managed
Specialty Finance portfolio as of or for the six months ended June 30 ($'s in
millions):
2005 2004
-------- ---------
Loss allowance as % of reservable assets.............. 6.3% 6.4%
Impairments and net charge-offs....................... $ .9 $ 3.7
Net book value of managed portfolio................... $ 675.4 $ 803.5
SUMMARY
During the six-month period ending June 30, 2005, the Specialty Finance
portfolio declined as portfolio runoff exceeded new investment. Specialty's
average total assets decreased by $170.1 million compared to the prior year with
the largest decrease being the venture loan investment balance. At June 30, 2005
the total balance of venture investments was $31.1 million. Specialty is
pursuing new investments in marine assets and other targeted industrial
equipment. 2005 year to date investment volume in these areas is $31.6 million.
Specialty's net income of $33.8 million for the first six months of 2005
was $8.8 million higher than prior year and second quarter net income of $23.8
million was $14.7 million higher than the prior year quarter. Second quarter and
year to date results reflect strong results from the marine joint ventures and
large asset remarketing gains.
COMPARISON OF FIRST SIX MONTHS OF 2005 TO FIRST SIX MONTHS OF 2004
GROSS INCOME
Gross income of $73.4 million was $11.2 million higher than the prior
year. The increase is primarily due to higher share of affiliates' earnings,
asset remarketing income and gain on sale of securities, and is partially offset
by lower interest income. Share of affiliates' earnings of $22.0 million was
$13.4 million higher the prior year as a result of high utilization and higher
charter rates for the vessels in the marine joint ventures driven by the strong
international shipping market. Asset remarketing income in the current year
includes a $12.8 million residual sharing fee from a managed portfolio; the
prior year included an $11.8 million gain from the final asset sale and
dissolution of a corporate aircraft joint venture. The increase in gain on sale
of securities in the current year was attributable to a $3.7 million gain from
the sale of shares in an internet search engine company. Interest income of $4.4
million was $7.8 million lower than the prior year due to the runoff of venture
and other portfolio loans and a $4.0 million prepayment penalty received in the
first half of 2004.
OWNERSHIP COSTS
Ownership costs of $14.1 million in 2005 decreased $4.2 million compared
to the prior year primarily due to lower debt balances related to the declining
investment portfolio.
OTHER COSTS AND EXPENSES
Other costs and expenses of $4.6 million increased $1.0 million primarily
due to a lower loss provision reversal due to the reduced magnitude of the
venture portfolio runoff partially offset by asset impairment charges in 2005
for certain assets classified as held for sale. Other costs and expenses were
also impacted by the change in fair value of derivatives which are primarily the
result of currency fluctuations and largely offset by the remeasurement of the
associated investments reported as other income, and lower SG&A due to staff
reductions.
TAXES
See "Consolidated Income Taxes" for a discussion of GATX's consolidated
income tax expense.
24
COMPARISON OF SECOND QUARTER 2005 TO SECOND QUARTER 2004
GROSS INCOME
Gross income of $46.7 million was $20.6 million higher than the prior
year. The increase is primarily due to higher share of affiliates' earnings and
asset remarketing income. Asset remarketing income in the current year includes
a $12.8 million residual sharing fee from a managed portfolio. Share of
affiliates' earnings of $12.6 million was $8.6 million higher than the prior
year period as a result of high utilization and higher freight rates for the
vessels in the marine joint ventures driven by strong international shipping
market.
OWNERSHIP COSTS
Ownership costs of $7.1 million decreased $1.6 million compared to the
prior year primarily due to lower debt balances related to the declining
investment portfolio.
OTHER COSTS AND EXPENSES
Other costs and expenses of $1.1 million decreased $.9 million. The
increase in fair value of derivatives is due to currency fluctuations which are
largely offset by the remeasurement of the associated investments reported as
other income, and higher market prices for the warrant portfolio. The current
year includes lower loss provision reversal due to the reduced magnitude of the
venture portfolio runoff.
OTHER
Components of Other's income statement are summarized below (in millions):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
GROSS INCOME
Marine operating revenue....................... $ 40.3 $ 33.3 $ 46.0 $ 40.0
Other.......................................... (4.2) 2.6 (4.4) 3.4
--------- --------- --------- ---------
TOTAL GROSS INCOME............................. 36.1 35.9 41.6 43.4
OWNERSHIP COSTS
Depreciation................................... 2.0 2.0 2.0 2.0
Interest, net.................................. 1.7 6.2 2.6 11.1
--------- --------- --------- ---------
TOTAL OWNERSHIP COSTS.......................... 3.7 8.2 4.6 13.1
OTHER COSTS AND EXPENSES
Marine operating expenses...................... 30.4 25.9 35.3 31.5
Other operating expenses....................... -- -- -- .1
Debt extinguishment costs...................... 11.9 -- 11.9 --
Selling, general and administrative expenses... 16.3 19.0 28.4 32.4
Reversal of provision for possible losses...... (.8) -- (1.5) --
Fair value adjustments for derivatives......... (4.7) .3 (6.5) .3
--------- --------- --------- ---------
TOTAL OTHER COSTS AND EXPENSES................. 53.1 45.2 67.6 64.3
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES....................... (20.7) (17.5) (30.6) (34.0)
INCOME TAX BENEFIT............................. (8.2) (6.8) (11.7) (12.4)
--------- --------- --------- ---------
NET LOSS....................................... $ (12.5) $ (10.7) $ (18.9) $ (21.6)
========= ========= ========= =========
SUMMARY
Other is comprised of corporate results, including SG&A and interest
expense net of amounts allocated to the segments, and the results of ASC.
Other's six month loss of $18.9 million is $2.7 million lower than the prior
year and the second quarter loss of $12.5 million is $1.8 million higher than
the prior year quarter. Both six months and three months results reflect the
favorable impact of improved results at ASC combined with lower net interest
expense and SG&A offset by debt extinguishment costs.
25
COMPARISON OF FIRST SIX MONTHS OF 2005 TO FIRST SIX MONTHS OF 2004
GROSS INCOME
Gross income of $41.6 million in 2005 decreased by $1.8 million from the
prior year as higher marine revenue was offset by a $5.9 million foreign
exchange remeasurement loss from a Euro denominated loan made to a foreign
subsidiary. This remeasurement loss is essentially offset by fair value
adjustments to derivatives. Other income in the current year also includes $1.5
million related to receipt of an IRS refund pursuant to a prior year interest
claim. The prior year included $3.2 million in proceeds related to the Airlog
insurance recoveries. The favorable variance in marine operating revenue is due
to higher freight rates driven by strong demand for ASC's vessels.
OWNERSHIP COSTS
Ownership costs of $4.6 million were $8.5 million favorable to prior year.
The favorable variance in the current year is primarily due to lower net
interest expense which reflects the positive impact of carrying less excess
liquidity in 2005 versus 2004.
OTHER COSTS AND EXPENSES
SG&A expenses of $28.4 million were $4.0 million lower than prior year.
The variance is primarily attributable to higher consulting fees in 2004
associated with the implementation of the requirements imposed by Section 404 of
the Sarbanes-Oxley Act. Marine operating expenses of $35.3 million were $3.8
million higher than the prior year attributable to increased fleet activity and
vessel fuel costs at ASC. The net contribution from ASC increased $2.0 million
year over year.
Debt extinguishment costs of $11.9 million in the current year primarily
relate to one-time fees associated with liability management activities. During
the second quarter, GFC completed a bond tender for an aggregate principal
amount of $188.4 million of debt scheduled to mature in 2006, and prepaid in
excess of $110.0 million of higher cost secured borrowings.
Fair value adjustments for derivatives in 2005 of $(6.5) million are a
result of currency fluctuations and are offset by the remeasurement loss of the
associated Euro denominated loan recorded in other income.
TAXES
See "Consolidated Income Taxes" for a discussion of GATX's consolidated
income tax expense.
COMPARISON OF SECOND QUARTER 2005 TO SECOND QUARTER 2004
GROSS INCOME
Gross income of $36.1 million in 2005 increased by $.2 million from the
prior year period primarily due to higher marine revenue offset by a $4.1
million foreign exchange remeasurement loss from a Euro denominated loan made to
a foreign subsidiary. The prior year period included $3.2 million in proceeds
related to the Airlog insurance recoveries. The favorable variance in marine
operating revenue is due to higher freight rates driven by strong demand for
ASC's vessels.
OWNERSHIP COSTS
Ownership costs of $3.7 million were $4.5 million favorable to the prior
year period primarily due to lower net interest expense.
OTHER COSTS AND EXPENSES
SG&A expenses of $16.3 million were $2.7 million lower than the prior year
period. The variance is primarily attributable to higher consulting fees in 2004
associated with the implementation of the requirements imposed by Section 404 of
the Sarbanes-Oxley Act. Marine operating expenses of $30.4 million were $4.5
million unfavorable to the prior year due to increased fleet activity and vessel
fuel costs.
26
Debt extinguishment costs of $11.9 million in the current year period
primarily relate to one-time fees associated with liability management
activities. During the second quarter, GFC completed a bond tender for an
aggregate principal amount of $188.4 million of debt scheduled to mature in
2006, and prepaid in excess of $110.0 million of higher cost secured borrowings.
Fair value adjustments for derivatives in 2005 of $(4.7) million are a
result of currency fluctuations and are offset by the remeasurement loss of the
associated Euro denominated loan recorded in other income.
GATX CONSOLIDATED
CONSOLIDATED INCOME TAXES
GATX's effective tax rate for continuing operations was 35% for the six
months ended June 30, 2005 compared to 32% for the six months ended June 30,
2004. The lower tax rate in 2004 resulted primarily from a deferred tax benefit
recorded due to a reduction in the tax rate enacted in Austria. The composition
of the tax rate for the six months ended June 30, 2005 was primarily
attributable to U.S. taxes at the federal tax statutory rate of 35%. The impact
of state income taxes was substantially offset by lower taxes on foreign income.
GATX expects that U.S. taxable income generated in the first two quarters and
throughout 2005 will be entirely offset by a consolidated net operating loss
carry forward, resulting in no currently payable or recoverable U.S. taxes.
The American Jobs Creation Act of 2004 introduced a special one-time
dividends received deduction on the repatriation of certain foreign earnings to
a U.S. taxpayer (repatriation provision) provided certain criteria are met. The
repatriation provision is available to GATX for the year ended December 31,
2005. GATX has historically maintained that undistributed earnings of its
foreign subsidiaries and affiliates were intended to be permanently reinvested
in those foreign operations. GATX is currently evaluating the effect of the
repatriation provision on its plan for reinvestment or repatriation of foreign
earnings. The range of reasonably possible amounts of unremitted earnings
considered for repatriation, and the income tax effects of such repatriation
cannot be estimated with certainty at this time. The Company anticipates that
the evaluation of the effect of the repatriation provision will be completed
during the third quarter of 2005.
CASH FLOW AND LIQUIDITY
Over the course of a full year, GATX expects to generate significant cash
flow from a combination of operating activities and investment portfolio
proceeds, which is used to service debt, pay dividends, and fund portfolio
investments and capital additions. Cash flow from operations and portfolio
proceeds are impacted by changes in working capital and the timing of
disposition events. As a result, cash flow components will vary quarter to
quarter. The following discussion of cash flow activity is presented excluding
the impact of discontinued operations.
Net cash provided by continuing operations for the first six months of
2005 was $95.0 million, a decrease of $10.7 million from the prior year period.
Excluding a federal tax refund of $51.0 million received in 2004, cash flow from
operations increased $40.3 million due to higher lease income partially offset
by debt management costs and higher operating lease payments.
Portfolio investments and capital additions for the six months of 2005
totaled $188.5 million, a decrease of $180.6 million from the comparable 2004
period. Rail's investment of $150.6 million during the six months of 2005 was
$100.4 million lower from the prior year period. High car prices and strong
competition for railcar acquisitions in the secondary markets have made it more
challenging to find attractive new investments. Significant 2005 activity at
Rail included the addition of 2,120 cars to the North American fleet, including
885 cars from the Committed Purchase Program. Air invested $2.9 million during
the first six months of 2005, a decrease of $95.5 million from the prior year
period due to the timing of progress payments and the absence of new aircraft
deliveries in 2005. Additionally, Air's 2005 portfolio investments and capital
additions included $62.7 million of non-cash contributions related to the
transfer of a 50% interest in four aircraft to a newly formed joint venture.
Specialty invested $31.6 million during the first six months of 2005, an
increase of $13.5 million from the prior year period primarily due to the
funding of an interest in a new marine joint venture investment.
Portfolio proceeds of $192.6 million for the first six months of 2005
decreased $36.0 million from the prior year period.
27
The decrease was primarily due to a decline in loan payments received, lower
proceeds from sale of securities and cash distributions from joint venture
investments. This was partially offset by an increase in proceeds from asset
remarketing. 2005 portfolio proceeds included $62.7 million from the sale of a
50% interest in four aircraft related to the formation of a new joint venture at
Air as noted above.
Proceeds from other asset sales for the first six months of 2005 were
$212.2 million, an increase of $191.3 million from prior year period. This was
primarily due to a $201.3 million sale/leaseback transaction of approximately
2,900 railcars. The resulting operating lease is for a term of 21 years.
GATX's operating subsidiaries fund investment and meet debt, lease and
dividend obligations through cash flow from operations, portfolio proceeds
(including proceeds from asset sales), uncommitted money market lines,
commercial paper, committed revolving credit facilities, the issuance of
unsecured debt, and a variety of secured borrowings. GATX utilizes both the
domestic and international bank and capital markets.
In the first six months of 2005, GATX, primarily through its principal
subsidiary, GFC, issued $330.0 million and repaid $523.4 million of debt.
Repayments of debt included an $80.0 million term loan, $72.5 million of Rail's
secured debt and other debt of $16.1 million with original final maturity dates
in 2006, 2007 and 2011, respectively. In addition, GFC repaid $152.3 million of
medium term notes and other debt due in the first six months of 2005.
During the second quarter, GFC completed a bond tender for an aggregate
principal amount of $188.4 million, consisting of $67.7 million of 6-7/8% notes
and $120.7 million of 7-3/4% notes, each issue maturing in December 2006. In
addition, GFC issued a total of $330.0 million of senior unsecured debt for net
proceeds of $327.4 million, including $230.0 million of five-year notes with a
5-1/8% rate, and $100.0 million of ten-year notes with a 5.7% rate.
On June 27, 2005, GFC entered into a new $525.0 million credit facility.
This new five-year senior unsecured revolving facility which matures in June
2010, replaces the $445.0 million three-year revolving credit facility
previously in place at GFC. At June 30, 2005, availability of the credit
facility was $500.3 million with $24.7 million of letters of credit issued and
backed by the facility. The revolving credit facility contains various
restrictive covenants, including requirements to maintain a defined net worth,
an asset coverage test, and a fixed charge coverage ratio. At June 30, 2005, GFC
was in compliance with all covenants and conditions of the credit facility.
The indentures for GFC's public debt also contain restrictive covenants,
including limitations on loans, advances or investments in related parties
(including GATX) and dividends it may distribute to GATX. Certain of the
indentures contain limitation on liens provisions that limit the amount of
secured indebtedness that GFC may incur. At June 30, 2005, GFC was in compliance
with the covenants and all conditions of the indentures.
In addition to the credit facility and indentures, GFC and its
subsidiaries are subject to financial covenants related to certain bank
financings. Some bank financings include coverage and net worth financial
covenants as well as negative pledges. One financing contains a leverage
covenant. Another financing contains leverage and cash flow covenants that are
specific to a subsidiary. GATX does not anticipate any covenant violation in the
credit facility, bank financings, or indenture, nor does GATX anticipate that
any of these covenants will restrict its operations or its ability to procure
additional financing.
As of June 30, 2005, GFC had a shelf registration for $1.0 billion of debt
securities and pass through certificates of which $496.5 million of senior
unsecured notes had been issued.
The availability of these funding options may be adversely affected by
certain factors including the global capital market environment and outlook as
well as GFC's financial performance and outlook. Access to capital markets at
competitive rates is dependent on GFC's credit rating as determined by rating
agencies such as Standard & Poor's (S&P) and Moody's Investors Service
(Moody's). GFC's current long-term unsecured debt credit rating from S&P is
BBB-, with a positive outlook, unchanged from December 31, 2004. Moody's current
credit rating on GFC's long-term unsecured debt remains unchanged from year end
at Baa3, with a stable rating outlook. GFC's existing commercial paper credit
ratings of A-3 (S&P) and P-3 (Moody's) restrict GFC's access to the commercial
paper market. However, at various times during the first half of 2005, GFC had
in excess of $100 million of commercial paper outstanding.
28
Unconditional purchase obligations of GATX's subsidiaries consist
primarily of committed aircraft deliveries and railcar orders. Unconditional
purchase obligations at June 30, 2005 were $531.2 million, comprised as follows
(in millions):
TOTAL REMAINDER 2005 2006 -2007 2008 -2009
--------- -------------- ---------- ----------
Rail....................................... $ 373.8 $ 129.6 $ 229.6 $ 14.6
Air........................................ 120.5 7.2 113.3 --
Specialty.................................. 36.9 36.0 .9 --
--------- -------------- ---------- ----------
Total unconditional purchase obligations.. $ 531.2 $ 172.8 $ 343.8 $ 14.6
========= ============== ========== ==========
NEW ACCOUNTING PRONOUNCEMENTS
See Note 3 to the consolidated financial statements for a summary of new
accounting pronouncements that may impact GATX's businesses.
CRITICAL ACCOUNTING POLICIES
There have been no changes to GATX's critical accounting policies during
the six month period ending June 30, 2005; refer to GATX's Annual Report on Form
10-K for the fiscal year ended December 31, 2004 for a summary of GATX's
policies.
NON-GAAP FINANCIAL MEASURES
This report includes certain financial performance measures some of which
are computed using non-GAAP (Generally Accepted Accounting Principles)
components. These measures are return on equity from continuing operations;
return on assets, including off balance sheet assets; and SG&A efficiency before
initial direct costs on owned and managed assets. As required under SEC rules,
GATX has provided a reconciliation of these non-GAAP components to the most
directly comparable GAAP amounts. Financial performance measures disclosed in
this report are meant to provide additional information and insight into
historical operating results and the financial position of the business.
Management uses these performance measures to assist in analyzing GATX's
underlying financial performance from period to period and to establish criteria
for compensation decisions. GATX presented return on assets, including off
balance sheet assets, because it believes that incorporating off balance sheet
assets, primarily railcars financed with operating leases, results in a more
accurate measure of the return GATX receives on assets in which it has an
ownership-like interest. The SG&A efficiency ratio as presented is a more
accurate measurement of actual SG&A incurred for the year as it relates to the
underlying owned and managed assets, an asset base which is more reflective of
the support services and administrative activities performed for both GATX and
its customers. These measures are not in accordance with, or a substitute for,
GAAP and may be different from or inconsistent with non-GAAP financial measures
used by other companies.
GLOSSARY OF KEY TERMS
- Initial Direct Costs - SG&A expenses incurred by GATX to originate new
loans and leases. Identified initial direct costs are deferred and
amortized over the term of the lease or loan.
- Managed Assets - Assets that GATX manages, but that are not included in on
balance sheet or off-balance sheet assets. An asset is considered managed
if GATX performs the same activities relative to the asset as performed
for similar owned assets. The managed assets include assets wholly-owned
by third-parties and assets owned by joint ventures in which GATX is both
an investor and manager. Managed assets are shown net of GATX's investment
in the joint venture, to the extent the investment is already included in
on balance sheet or off-balance sheet assets.
- Non-GAAP Financial Measures - Numerical or percentage based measures of
the company's historical performance, financial position or liquidity
calculated using a component different from that presented in the
financial statements as prepared in accordance with generally accepted
accounting principles.
- Off-Balance Sheet Assets - Assets, primarily railcars, which are financed
with operating leases and therefore not recorded on the balance sheet.
GATX estimates the off-balance sheet asset amount by calculating the
present value of committed future operating lease payments using a 10%
discount rate.
- On Balance Sheet Assets - Total assets as reported on the balance sheet
excluding assets of discontinued operations.
29
- Return on Assets - Income from continuing operations divided by average
total on and off-balance sheet assets.
- Return on Equity - Income from continuing operations divided by average
total shareholders' equity.
- SG&A - Selling, general and administrative expenses.
- SG&A Efficiency Ratio - SG&A before capitalized initial direct costs
divided by average total owned and managed assets.
- Total Owned and Managed Assets - The sum of on and off-balance sheet
assets and managed assets.
RECONCILIATION OF THE NON-GAAP COMPONENTS USED IN THE COMPUTATION OF
CERTAIN FINANCIAL PERFORMANCE MEASURES (IN MILLIONS):
JUNE 30
-----------------------------------
2005 2004 2003
--------- --------- ---------
BALANCE SHEET ASSETS AS REPORTED........... $ 5,364.0 $ 5,604.3 $ 6,172.9
LESS: DISCONTINUED OPERATIONS............. -- 71.2 541.5
--------- --------- ---------
CONSOLIDATED ON BALANCE SHEET ASSETS....... $ 5,364.0 $ 5,533.1 $ 5,631.4
ON BALANCE SHEET ASSETS BY SEGMENT
Rail....................................... $ 2,531.0 $ 2,555.5 $ 2,288.8
Air........................................ 1,995.7 2,032.6 1,949.5
Specialty.................................. 432.2 552.2 880.6
Other...................................... 405.1 392.8 512.5
--------- --------- ---------
Consolidated.......................... $ 5,364.0 $ 5,533.1 $ 5,631.4
OFF-BALANCE SHEET ASSETS
Rail....................................... $ 1,265.5 $ 1,178.2 $ 1,217.6
Air........................................ 28.4 28.4 28.0
Specialty.................................. 11.8 13.3 18.4
Other...................................... 28.3 33.4 38.0
--------- --------- ---------
Consolidated ......................... $ 1,334.0 $ 1,253.3 $ 1,302.0
TOTAL OFF AND ON BALANCE SHEET ASSETS (1)
Rail....................................... $ 3,796.5 $ 3,733.7 $ 3,506.4
Air........................................ 2,024.1 2,061.0 1,977.5
Specialty.................................. 444.0 565.5 899.0
Other...................................... 433.4 426.2 550.5
--------- --------- ---------
Consolidated.......................... $ 6,698.0 $ 6,786.4 $ 6,933.4
MANAGED ASSETS
Rail....................................... $ 36.4 $ 96.3 $ 106.3
Air........................................ 2,010.7 2,014.0 2,161.6
Specialty.................................. 675.4 803.5 922.3
--------- --------- ---------
Consolidated.......................... $ 2,722.5 $ 2,913.8 $ 3,190.2
TOTAL OWNED AND MANAGED ASSETS(2)
Rail....................................... $ 3,832.9 $ 3,830.0 $ 3,612.7
Air........................................ 4,034.8 4,075.0 4,139.1
Specialty.................................. 1,119.4 1,369.0 1,821.3
Other...................................... 433.4 426.2 550.5
--------- --------- ---------
Consolidated.......................... $ 9,420.5 $ 9,700.2 $10,123.6
========= ========= =========
30
The following information is based on continuing operations for the
trailing 12-months ended June 30 (in millions):
2005 2004
------- -------
INCOME FROM CONTINUING OPERATIONS AS REPORTED
Rail .......................................... $ 72.1 $ 60.5
Air ........................................... 10.0 9.1
Specialty ..................................... 49.4 45.4
Other ......................................... 50.5 (32.3)
------- -------
Consolidated ............................. $ 182.0 $ 82.7
SG&A NET OF CAPITALIZED INITIAL DIRECT COSTS
AS REPORTED
Rail .......................................... $ 72.6 $ 70.2
Air ........................................... 24.8 20.3
Specialty ..................................... 7.1 12.3
Other ......................................... 58.4 66.0
------- -------
Consolidated ............................. $ 162.9 $ 168.8
INITIAL DIRECT COSTS
Air ........................................... $ .9 $ 3.0
Specialty ..................................... -- .2
------- -------
Consolidated ............................. $ .9 $ 3.2
SG&A BEFORE CAPITALIZED INITIAL DIRECT COSTS(3)
Rail .......................................... $ 72.6 $ 70.2
Air ........................................... 25.7 23.3
Specialty ..................................... 7.1 12.5
Other ......................................... 58.4 66.0
------- -------
Consolidated ............................. $ 163.8 $ 172.0
======= =======
(1) Total on and off-balance sheet assets are used in the calculation of
return on assets which is income from continuing operations divided by
average total on and off-balance sheet assets.
(2) Total owned and managed assets are used in the calculation of the SG&A
efficiency ratio which is SG&A before capitalized initial direct costs
divided by average total owned and managed assets.
(3) SG&A before capitalized initial direct costs is used in the calculation of
the SG&A efficiency ratio which is SG&A before capitalized initial direct
costs divided by average total owned and managed assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 31, 2004, there have been no material changes in GATX's
interest rate and foreign currency exposures or types of derivative instruments
used to hedge these exposures, and no significant changes in underlying market
conditions. For a discussion of the Company's exposure to market risk refer to
Item 7A Quantitative and Qualitative Disclosure about Market Risk contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 2004.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, with the participation of its Chief Executive
Officer and Chief Financial Officer, have conducted an evaluation of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")). Based on
such evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of the period covered by this
quarterly report, the Company's disclosure controls and procedures were
effective.
No change in the Company's internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the
quarter ended June 30, 2005 that materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
31
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibits:
Reference is made to the exhibit index which is included
herewith and is incorporated by reference hereto.
32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GATX CORPORATION
(Registrant)
/s/ Robert C. Lyons
------------------------------
Robert C. Lyons
Vice President and
Chief Financial Officer
(Duly Authorized Officer)
Date: August 4, 2005
33
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
Filed with this Report:
10A. Summary of GATX Corporation Non-Employee Directors' Meeting Fees as
of August 1, 2005
31A. Certification Pursuant to Exchange Act Rule 13a-14(a) and Rule
15d-14(a) (CEO Certification).
31B. Certification Pursuant to Exchange Act Rule 13a-14(a) and Rule
15d-14(a) (CFO Certification).
32. Certification Pursuant to 18 U.S.C. Section 1350 (CEO and CFO
Certification).
Incorporated by Reference:
10B. Amended and Restated Five Year Credit Agreement dated as of June
27, 2005 between GATX Financial Corporation, the lenders listed
therein and Citicorp USA, Inc., as Administrative Agent is
incorporated herein by reference to GATX Financial Corporation's
Form 8-K dated June 27, 2005, file number 1-8319.
34