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| GMT > SEC Filings for GMT > Form 10-Q on 1-May-2009 | All Recent SEC Filings |
1-May-2009
Quarterly Report
DISCUSSION OF OPERATING RESULTS
Net income was $27.6 million or $.56 per diluted share for the first three
months of 2009 compared to net income of $51.8 million or $1.03 per diluted
share in the first quarter of 2008. The 2009 first quarter results include an
after-tax unrealized loss of $11.6 million, representing the change in the fair
value of certain interest rate swaps at GATX's AAE Cargo affiliate, and the 2008
first quarter results include a $6.8 million after tax benefit from the reversal
of tax reserves. Results for 2008 have been restated to reflect the adoption of
FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).
See Note 2 to the consolidated financial statements for further information.
Total investment volume was $79.3 million for the first three months of 2009
compared to $71.4 million for the first three months of 2008.
The following table presents a financial summary of GATX's operating segments
(in millions, except per share data):
Three Months Ended
March 31
2009 2008
Gross Income
Rail $ 225.5 $ 253.5
Specialty 36.5 42.2
ASC 2.2 15.2
Total segment gross income 264.2 310.9
Other income 0.2 0.2
Consolidated Gross Income 264.4 311.1
Segment Profit
Rail 43.1 73.8
Specialty 23.0 30.0
ASC 4.8 0.7
Total Segment Profit 70.9 104.5
Less:
Selling, general and administrative expenses 33.0 38.5
Unallocated interest expense, net (0.1 ) (0.4 )
Other income and expense, including eliminations (1.5 ) (0.3 )
Income taxes 11.9 14.9
Net Income $ 27.6 $ 51.8
Basic earnings per share $ 0.57 $ 1.10
Diluted earnings per share $ 0.56 $ 1.03
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Return on Equity
GATX's return on equity ("ROE") is based on net income and is shown for the
trailing twelve months ended March 31:
2009 2008 ROE 15.5 % 17.8 %
Segment Operations
Segment profit is an internal performance measure used by the Chief Executive
Officer to assess the performance of each segment in a given period. Segment
profit includes all revenues, including affiliate earnings, attributable to the
segments as well as ownership and other costs that management believes are
directly associated with the maintenance or operation of the revenue earning
assets. Other costs include maintenance costs, marine operating costs, asset
impairment charges and other costs such as litigation, provisions for losses,
environmental costs, and asset storage costs. Segment profit excludes selling,
general and administrative expenses, income taxes and certain other amounts not
allocated to the segments. These amounts are discussed below in Other.
GATX allocates debt balances and related interest expense to each segment
based upon a pre-determined fixed recourse leverage level expressed as a ratio
of recourse debt (including off balance sheet debt) to equity. The leverage
levels for Rail, Specialty and ASC are set at 4:1, 3:1 and 1.5:1, respectively.
Management believes that by utilizing this leverage and interest expense
allocation methodology, each operating segment's financial performance reflects
appropriate risk-adjusted borrowing costs.
Three Months Ended
March 31
2009 2008
Gross Income
Lease income $ 216.5 $ 219.5
Asset remarketing income 4.7 11.0
Other income 13.2 17.5
Revenues 234.4 248.0
Affiliate earnings (8.9 ) 5.5
225.5 253.5
Ownership Costs
Depreciation 46.2 44.2
Interest expense, net 33.6 30.1
Operating lease expense 33.6 37.6
113.4 111.9
Other Costs and Expenses
Maintenance expense 61.2 60.2
Other 7.8 7.6
69.0 67.8
Segment profit $ 43.1 $ 73.8
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Rail's Lease Income
Components of Rail's lease income are outlined below (in millions):
Three Months Ended
March 31
2009 2008
North America $ 175.6 $ 172.6
Europe 32.8 38.3
Locomotives 8.1 8.6
$ 216.5 $ 219.5
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GATX Lease Price Index
The LPI is an internally generated business indicator that measures general
lease rate pricing on renewals within Rail's North American fleet. The index
reflects the weighted average lease rate for a select group of railcar asset
types that GATX believes to be representative of its overall North American
fleet. The LPI measures the percentage change between the weighted average
expiring lease rate and the weighted average renewal lease rate. Average renewal
term reflects the weighted average renewal lease term in months.
The following table sets forth certain metrics for railcars in the LPI:
Three Months Ended
March 31
2009 2008
Average Renewal Lease Rate Change (5.5 )% 11.6 %
Average Renewal Term (months) 45 65
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Rail's Fleet Data
The following table summarizes fleet activity for Rail's wholly-owned North
American railcars:
Three Months Ended
March 31
2009 2008
Beginning balance 112,976 112,445
Cars added 354 725
Cars scrapped or sold (1,004 ) (2,416 )
Ending balance 112,326 110,754
Utilization rate at quarter end 96.5 % 98.1 %
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The following table summarizes fleet activity for Rail's wholly-owned European railcars:
Three Months Ended
March 31
2009 2008
Beginning balance 19,724 19,435
Cars added 190 56
Cars scrapped or sold (28 ) (8 )
Ending balance 19,886 19,483
Utilization rate at quarter end 96.5 % 97.5 %
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Comparison of the First Three Months of 2009 to the First Three Months of 2008
Segment Profit
Rail's segment profit for the first three months of 2009 was significantly
impacted by a $14.3 million unrealized loss representing the change in the fair
value of certain interest rate swaps at its AAE Cargo affiliate. Excluding the
unrealized loss, Rail's segment profit decreased $16.4 million from 2008,
primarily due to lower asset remarketing income and scrapping gains.
Gross Income
Lease income in North America increased $3.0 million, primarily the result of
an average of over 1,000 more cars on lease, largely due to the Allco fleet
acquisition completed at the end of 2008. In Europe, lease income decreased
$5.5 million due to weaker foreign exchange rates, partially offset by an
average of over 220 more cars on lease. Asset remarketing income decreased
$6.3 million as the current year included a $4.0 million residual sharing fee
while the prior year included the disposition of nearly 1,400 railcars. Other
income was lower in 2009 primarily due to lower scrap income. Affiliate earnings
in 2009 were lower due to the $14.3 million unrealized loss at AAE. Excluding
the unrealized loss, 2009 affiliate earnings were comparable to 2008. However,
pressures in the European freight car market are intense, particularly in
intermodal cars where AAE has substantial exposure. It is likely that AAE's
operating performance will be under increasing stress as 2009 progresses.
AAE holds multiple derivative instruments to hedge interest rate risk
associated with forecasted floating rate debt issuances related to future new
car orders. These instruments do not qualify for hedge accounting based on their
applicable terms and as a result, changes in their fair values are recognized
currently in income. The unrealized loss recognized in 2009 was primarily driven
by the significant decline in benchmark interest rates. AAE's earnings may be
impacted by future unrealized gains or losses associated with these instruments.
Ownership Costs
Ownership costs for the first three months of 2009 increased $1.5 million,
primarily due to interest associated with investment volume of $603.4 million
over the last 12 months. The mix of ownership costs was impacted by the purchase
of $70.1 million of previously leased in assets in 2008.
Other Costs and Expenses
Maintenance expenses for the first three months of 2009 increased
$1.0 million, primarily the result of higher car volumes and increased repairs
performed by railroads, partially offset by the effect of foreign exchange
rates. In North America, maintenance costs were $4.8 million higher largely due
to an increase in the number of wheelset replacements performed by railroads and
higher car volumes. In Europe, maintenance costs decreased $3.8 million
primarily due to weakening foreign currencies.
Components of Specialty's operating results are outlined below (in millions):
Three Months
Ended March 31
2009 2008
Gross Income
Lease income $ 15.3 $ 14.2
Asset remarketing income 9.7 9.9
Other income 1.1 1.7
Revenues 26.1 25.8
Affiliate earnings 10.4 16.4
36.5 42.2
Ownership Costs
Depreciation 4.9 4.0
Interest expense, net 5.8 4.1
Operating lease expense 0.4 0.5
11.1 8.6
Other Costs and Expenses 2.4 3.6
Segment profit $ 23.0 $ 30.0
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Specialty's Portfolio Data
The following table summarizes information on the owned and managed Specialty
portfolio (in millions):
March 31
2009 2008
Net book value of owned assets (a) $ 641.3 $ 521.5
Net book value of managed portfolio 274.1 361.2
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(a) Includes off balance sheet assets
Comparison of the First Three Months of 2009 to the First Three Months of 2008
Segment Profit
Specialty's segment profit for the first three months of 2009 was
$7.0 million lower than the prior year, primarily due to lower marine affiliate
earnings.
Gross Income
Lease income was $1.1 million higher than the prior year, primarily due to
income from investments in operating lease assets made in 2008. Share of
affiliate earnings decreased $6.0 million from the prior year, primarily due
lower charter rates achieved by marine vessels as a result of the slowdown in
the global economy.
Ownership Costs
Ownership costs were $2.5 million higher than the prior year, primarily due
to an increase in interest and depreciation expense related to operating lease
assets acquired in 2008.
Other Costs and Expenses
The decrease in other costs and expenses in 2009 was primarily due to a
$0.7 million favorable difference in the fair value adjustment for warrants and
lower costs for pooled barges.
Three Months
Ended March 31
2009 2008
Gross Income
Marine operating revenues $ 1.1 $ 14.1
Lease income 1.0 1.1
Other income 0.1 -
2.2 15.2
Ownership Costs
Interest expense, net 2.2 2.4
2.2 2.4
Other Costs and Expenses
Maintenance expense 0.1 0.6
Marine operating expense 0.7 11.5
Other (5.6 ) -
(4.8 ) 12.1
Segment profit $ 4.8 $ 0.7
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Comparison of the First Three Months of 2009 to the First Three Months of 2008
Segment Profit
ASC's segment profit of $4.8 million was $4.1 million higher than prior year.
The favorable variance was primarily due to receipt of a litigation settlement,
partially offset by lower income due to significantly lower freight volume in
2009.
Gross Income
Gross income for the first three months of 2009 decreased $13.0 million from
the prior year. The decrease was primarily due to significantly lower freight
volume in 2009 compared to 2008.
Ownership Costs
Ownership costs between the two periods were comparable.
Other Costs and Expenses
Other costs and expenses for the first three months of 2009 decreased
$16.9 million from the prior year. The variance was primarily due to
substantially reduced shipping activity in 2009 compared to 2008 and the receipt
of a $5.6 million litigation settlement.
Components of Other are outlined below (in millions):
Three Months
Ended March 31
2009 2008
Selling, general and administrative expenses $ 33.0 $ 38.5
Unallocated interest expense, net (0.1 ) (0.4 )
Other income and expense, including eliminations (1.5 ) (0.3 )
Income taxes 11.9 14.9
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SG&A, Unallocated Interest and Other
SG&A was $5.5 million lower than the prior year, primarily due to lower
compensation expense and weaker foreign exchange rates. Unallocated interest
expense is the difference between actual external interest expense incurred (net
of interest income earned on certain cash balances) and amounts allocated to the
reporting segments in accordance with assigned leverage targets. Unallocated
interest expense in 2009 was comparable to the prior year. Other income and
expense in 2009 was $1.2 million favorable to the prior year, primarily due to a
reduction of a non-income tax accrual.
Income Taxes
GATX's effective tax rate was 30% for the three months ended March 31, 2009,
compared to 22% for the three months ended March 31, 2008. In 2008, the statute
of limitations on a state income tax position taken in a prior period expired,
resulting in the recognition of previously unrecognized tax benefits of
$6.8 million. Additionally, in the current year, a change in the functional
currency tax election of a foreign wholly-owned subsidiary resulted in the
recognition of a $2.4 million deferred tax benefit. Excluding the effect of the
tax benefits from both years, GATX's effective tax rate was for the first three
months of 2009 and 2008 was 36% and 33% respectively.
Cash Flow and Liquidity
Over the course of a full year, GATX expects to generate significant cash
flow from a combination of operating activities and investment portfolio
proceeds. This cash flow is used to service debt, pay dividends, and fund
portfolio investments and capital additions. Cash flow from operations and
portfolio proceeds are impacted by changes in working capital and the timing of
asset dispositions. As a result, cash flow components will vary quarter to
quarter.
Net cash provided by operating activities for the first three months of 2009
was $29.5 million, a decrease of $3.5 million from the prior year. The decrease
was primarily due to changes in working capital. Cash flow tends to be lower in
the first quarter relative to subsequent quarters due to the timing of certain
payments.
Portfolio investments and capital additions for the first three months of
2009 totaled $79.3 million, an increase of $7.9 million from the prior year.
Rail investments in 2009 were $70.5 million, while Specialty investments were
$4.2 million. The timing of investments is dependent on transaction
opportunities and market conditions.
Portfolio proceeds totaled $27.2 million for the first three months of 2009,
a decrease of $38.9 million from the prior year. The decrease was primarily due
to lower asset remarketing proceeds.
Other proceeds of $32.6 million for the first three months of 2009 consisted
of $27.3 million received from the partial liquidation of a money market fund
investment and $5.3 million from the scrapping of railcars. Other proceeds for
the first three months of 2008 consisted of $8.2 million from the scrapping of
railcars.
GATX also expects to meet debt, lease and dividend obligations through
commercial paper issuances, committed revolving credit facilities and the
issuance of secured and unsecured debt. GATX utilizes both domestic and
international banks and capital markets.
Debt repayments for the first three months of 2009 were $9.4 million,
consisting of scheduled principal payments.
. . .
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