GATX - 10-Q quarterly report FY

 

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As of September 30, 2008, 48.7 million common shares were outstanding.

 

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

     GATX Corporation (“GATX” or the “Company”) leases, operates and manages long-lived, widely used assets in the rail, marine and industrial equipment markets. GATX also invests in joint ventures that complement existing business activities. Headquartered in Chicago, Illinois, GATX has three financial reporting segments: Rail, Specialty and American Steamship Company (“ASC”).

     The accompanying unaudited consolidated financial statements of GATX Corporation and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by these accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2008, are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2008. For further information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2007, as set forth in the Company’s Annual Report on Form 10-K/A as filed with the Securities and Exchange Commission (“SEC”).

     GATX adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements(“SFAS No. 157”), effective January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The adoption of SFAS No. 157 had no effect on GATX’s consolidated financial statements. See Note 12 for a complete discussion of SFAS No. 157.

     In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. Adoption of SFAS No. 161 will have no impact on GATX’s consolidated financial position, results of operations or cash flows.

     In May 2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP No. APB 14-1” or the “FSP”), which clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. The FSP requires issuers of applicable convertible debt instruments to account separately for the liability (debt) and equity (conversion option) components in a manner that reflects the issuer’s nonconvertible debt (unsecured debt) borrowing rate. The FSP requires bifurcation of a component of the convertible debt, classification of that component as equity, and then accretion of the resulting discount on the debt as additional interest expense over the expected term of the debt. The FSP requires retrospective application to all periods presented. The FSP is effective for GATX as of January 1, 2009, and early adoption is not permitted. The adoption of this FSP will affect the accounting for GATX’s current 5% convertible notes due 2023 and its previous 7.25% convertible notes that matured in February 2007. GATX is presently evaluating the impact that the application of this FSP will have to its consolidated financial position and results of its operations.

     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 lease financing and related services for customers operating rail, marine and industrial equipment assets, as well as other business activities, including ventures that provide asset residual value guarantees in both domestic and foreign markets.

     Operating results for all affiliated companies, assuming GATX held a 100% interest, would be (in millions):

     The components of pension and other post-retirement benefit costs for the three months ended September 30, 2008 and 2007, were as follows (in millions):

     The components of pension and other post-retirement benefit costs for the nine months ended September 30, 2008 and 2007, were as follows (in millions):

     The amounts reported herein are based on estimated annual costs. Actual annual costs for the year ending December 31, 2008, may differ from these estimates.

     In connection with certain investments or transactions, GATX has entered into various commercial commitments, such as guarantees and standby letters of credit, 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 risk; accordingly, GATX evaluates its commitments and other contingent obligations using techniques similar to those used to evaluate funded transactions.

     The following table sets forth GATX’s commercial commitments as of (in millions):

     Affiliate guarantees generally involve guaranteeing repayment of the financing utilized by an affiliate to acquire or lease-in assets, which are subsequently leased-out to third parties, 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.

     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 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 recognized when realized). Any liability resulting from GATX’s performance pursuant to these guarantees will be reduced by the value realized from the underlying asset or group of assets. Historically, gains associated with the settlement of residual value guarantees have exceeded any losses and were 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. GATX believes these asset residual value guarantees will likely generate future income in the form of fees and residual sharing proceeds.

     Lease payment guarantees represent GATX’s guarantees to financial institutions of finance and operating lease payments of unrelated parties in exchange for a fee.

     Other consists of GATX’s indemnification of Airbus S.A.S. (“Airbus”) for amounts Airbus may be required to pay under certain specified circumstances to GATX Flightlease Aircraft Ltd. (“GFAC”), a joint venture partially owned by GATX, in connection with an aircraft purchase contract entered into by GFAC and Airbus in 2001. GATX’s indemnification obligation is capped at $77.8 million. No liability has been recorded with respect to this indemnification as GATX believes that the likelihood of having to perform under the indemnity is remote.

     GATX and its subsidiaries are also parties to standing letters of credit and bonds primarily related to workers’ compensation and general liability insurance coverage. No material claims have been made against these obligations. At September 30, 2008, GATX does not expect any material losses to result from these off balance sheet instruments because performance is not anticipated to be required.

     GATX has ownership interests in certain investments that are considered Variable Interest Entities (“VIEs”) in accordance with FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN 46(R)”). GATX does not believe it is the primary beneficiary with respect to any of its VIEs and therefore does not consolidate them. These entities are generally involved in railcar and equipment leasing activities. The nature of GATX’s involvement with these entities primarily consists of equity investments and leveraged leases which were acquired or entered into between 1994 and 2002. GATX continues to evaluate new investments for the application of FIN 46(R) and regularly reviews all existing VIEs in connection with any reconsideration events (as defined in FIN 46(R)) that may result in GATX becoming the primary beneficiary. As of September 30, 2008, GATX’s maximum exposure to loss with respect to its VIEs was approximately $122.8 million, of which $104.3 million was the aggregate carrying value of these investments recorded on its balance sheet. The difference between the carrying value and maximum loss exposure relates to GATX’s guarantee of an affiliate’s lease obligation that runs through 2018.

     The components of comprehensive income were as follows (in millions):

     In the first nine months of 2008, GATX granted 308,700 stock appreciation rights (“SAR”), 65,258 restricted stock units and 72,550 performance shares. For the three and nine months ended September 30, 2008, total share-based compensation expense was $2.4 million ($1.5 million after tax) and $7.0 million ($4.3 million after tax), respectively. For the three and nine months ended September 30, 2007, total share-based compensation expense was $1.8 million ($1.1 million after tax) and $7.0 million ($4.3 million after tax), respectively.

     The weighted average estimated fair value of GATX’s 2008 SAR awards and underlying assumptions thereof are noted in the table below. The vesting period for the 2008 SAR grant is three years, with 1/3 vesting after each year.

     GATX’s effective tax rate for continuing operations was 27% for the nine months ended September 30, 2008, compared to 32% for the nine months ended September 30, 2007. 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, lower statutory rates in a number of foreign jurisdictions have benefited GATX’s overall effective tax rate.

     As of September 30, 2008, GATX’s gross liability for unrecognized tax benefits totaled $50.8 million, which, if fully recognized, would decrease income tax expense by $33.9 million ($31.8 million net of federal tax).

     In the first nine months of 2008, holders of GATX’s 5.0% senior unsecured notes (the “2003 Notes”) converted $64.8 million of notes, of which $0.7 million was settled in cash and $64.1 million was settled with shares. A total of 2.6 million common shares were issued as a result and no gain or loss was recognized. Additionally, upon conversion, holders of the 2003 Notes forfeited accrued but unpaid interest as of the conversion date. In 2008, forfeited interest due to conversions was $1.0 million, net of tax effects, which was recorded as an adjustment to additional paid in capital. At September 30, 2008, $41.9 million of 2003 Notes were outstanding and convertible at a conversion price of $24.81 per share.

     On January 23, 2008, the Company’s Board of Directors authorized a $200 million common stock repurchase program. As of September 30, 2008, 2.1 million shares have been repurchased for $76.5 million, all of which occurred in the first quarter. The repurchased shares were recorded as treasury stock under the cost method. No repurchases have been made since the first quarter as the Company has opted to retain this capital to support potential investment opportunities. Accordingly, the Company

no longer expects to complete this program in 2008.

     Basic earnings per share were computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during each period. Shares issued or reacquired during the period, if applicable, were weighted for the portion of the period that they were outstanding. Diluted earnings per share give effect to the impact of potentially dilutive securities, including convertible preferred stock, stock options, SARs, restricted stock and convertible debt.

     The following table sets forth the computation of basic and diluted net income per common share (in millions, except per share amounts):

     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.

     GATX leases, operates and manages long-lived, widely used assets in the rail, marine and industrial equipment markets. GATX also invests in joint ventures that complement existing business activities. Headquartered in Chicago, Illinois, GATX has three financial reporting segments: Rail, Specialty and ASC.

     Rail is principally engaged in leasing tank and freight railcars and locomotives. Rail provides railcars primarily pursuant to full-service leases, under which it maintains the railcars, pays ad valorem taxes and insurance, and provides other ancillary services. Rail also offers net leases for railcars and most of its locomotives, in which case the lessee is responsible for maintenance, insurance and taxes.

     Specialty provides leasing and related remarketing and asset management services in the marine and industrial equipment markets. The Specialty portfolio consists primarily of operating and direct finance lease assets; joint venture investments; loans; and interests in residual values involving a variety of underlying asset types, including marine, rail, industrial and other equipment.

     ASC operates a fleet of self-unloading marine vessels on the Great Lakes and is exclusively engaged in the waterborne transportation of dry bulk commodities.

     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 operating costs that management believes are directly associated with the maintenance or operation of the revenue earning assets. Operating costs include maintenance costs, marine operating costs, asset impairment charges and other operating 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 included 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 an appropriate risk-adjusted cost of capital and is presented on a comparable basis.

     The following tables present certain segment data for the three and nine months ended September 30, 2008 and 2007 (in millions):

     The Company adopted SFAS No. 157, Fair Value Measurements, on January 1, 2008. SFAS No. 157 applies to all financial instruments being measured and reported on a fair value basis.

     SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

     Level 1 — Quoted prices that are available in active markets for identical assets or liabilities. The types of financial instruments included in Level 1 are marketable equity available for sale securities that are traded in an active exchange market.

     Level 2 — Pricing inputs other than quoted prices in active markets, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Instruments included in this category are warrants and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Also included in this category is a money market fund investment that at present is not actively traded.

     Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 includes assets and liabilities whose values are determined using pricing models, discounted cash

flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. At September 30, 2008, GATX had no Level 3 financial instruments.

     At September 30, 2008, the fair values of GATX’s financial instruments, which are remeasured on a recurring basis, are summarized below (in millions):

     Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against GATX and certain of its subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved, or settled adversely. For a discussion of these matters, please refer to Part I, Item 3, Legal Proceedings in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Except as noted below, there have been no material changes or developments in these matters.

     In December 2005, Polskie Koleje Panstwowe S.A. (“PKP”) filed a complaint, Polskie Koleje Panstwowe S.A. v. DEC sp. z o.o., in the Regional Court in Warsaw, Poland against DEC sp. z o.o. (“DEC”), an indirect wholly owned subsidiary of the Company, currently named GATX Rail Poland, sp. Zo.o. The complaint alleges that, prior to GATX’s acquisition of DEC in 2001, DEC breached a Conditional Sales Agreement (the “Agreement”) to purchase shares of Kolsped S.A. (“Kolsped”) which was an indirect subsidiary of PKP. The allegedly breached condition required DEC to obtain a release of Kolsped’s ultimate parent company, PKP, from its guarantee of Kolsped’s promissory note securing a $9.8 million bank loan. Pursuant to an amendment to the Agreement, DEC satisfied this condition by providing PKP with a blank promissory note (the “DEC Note”) and a promissory note declaration which allowed PKP to fill in the DEC Note up to $10 million in the event a demand was made upon it as guarantor of Kolsped’s note to the bank (the “Kolsped Note”). In May 1999, the then current holder of the Kolsped Note, a bank (“Bank”), sued PKP under its guarantee. PKP lost the DEC Note and therefore did not use it to satisfy the guarantee, and the Bank ultimately secured a judgment against PKP in 2002. PKP also failed to notify DEC of the Bank’s lawsuit while the lawsuit was pending.

     After exhausting its appeals of the judgment entered against it, PKP filed suit against DEC in December 2005, alleging that DEC failed to fulfill its obligation to release PKP as a guarantor of the Kolsped Note and is purportedly liable to PKP, as a third party beneficiary of the Agreement. DEC has filed an answer to the complaint denying the material allegations and raising numerous defenses, including, among others, that: (i) the Agreement did not create an actionable obligation, but rather was a condition precedent to the purchase of shares in Kolsped; (ii) DEC fulfilled that condition by issuing the DEC Note, which was subsequently lost by PKP and declared invalid by a Polish court; (iii) PKP was not a third party beneficiary of the Agreement; and (iv) the action is barred by the governing limitations period. The first day of trial was held on March 5, 2008, and the second day, which had previously been scheduled for September 16, 2008, was adjourned to allow time for the parties to discuss a settlement. To date, no settlement has been reached, and the second day of trial has not been rescheduled.

     PKP claims damages in the amount of PLN 116.3 million, which consists of the principal amount, interest and costs allegedly paid by it to the Bank and statutory interest. Statutory interest would be assessed only if the court awards damages to PKP, in which case interest would be assessed on the amount of the award from the date of filing of the claim in December 2005, to the date of the award. Based on current exchange rates, the potential exposure to DEC in the event of an adverse judgment, including the damages sought by PKP and any statutory interest that may be assessed thereon, is estimated to be $48 million.

     GATX Rail Poland intends to vigorously defend this lawsuit. However, the Company has recorded an accrual of $13.2 million representing management’s best estimate of a probable settlement amount. While the ultimate resolution of this

matter for an amount in excess of this accrual is possible, the Company believes that any such excess would not be material to its financial position or liquidity. However, such resolution could have a material adverse effect on the results of operations in a particular quarter or fiscal year.

     Discontinued operations consist of the Company’s former Air (“Air”) segment. On January 17, 2007, GATX completed the sale of the remainder of Air for gross proceeds of $227.1 million. Results of discontinued operations reflect directly attributable revenues, ownership, operating and SG&A expenses and income taxes.

     The following table summarizes certain operating data for discontinued operations (in millions):

     The following table summarizes the components of discontinued operations reported on the consolidated statement of cash flows (in millions):

     This document contains statements that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are subject to the safe harbor provisions of those sections and the Private Securities Litigation Reform Act of 1995. Some of these statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” or other words and terms of similar meaning. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those described in GATX’s Annual Report on Form 10-K and other filings with the SEC, and that actual results or developments may differ materially from those in the forward-looking statements. Specific factors that might cause actual results to differ from expectations include, but are not limited to, general economic, market, regulatory and political conditions in the rail, marine, and industrial equipment markets and other industries served by GATX and its customers; lease rates, utilization levels and operating costs in GATX’s primary asset segments; conditions in the capital markets; changes in GATX’s credit ratings; 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 other factors. Given these risks and uncertainties, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date hereof. GATX has based these forward-looking statements on information currently available and disclaims any intention or obligation to update or revise these forward-looking statements to reflect subsequent events or circumstances.

     This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on financial data derived from the financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) and certain other financial data that is prepared using non-GAAP components. For a reconciliation of these non-GAAP components to the most comparable GAAP components, see “Non-GAAP Financial Information” at the end of this Item.

     GATX Corporation leases, operates and manages long-lived, widely used assets in the rail, marine and industrial equipment markets. GATX also invests in joint ventures that complement existing business activities. Headquartered in Chicago, Illinois, GATX has three financial reporting segments: Rail, Specialty and American Steamship Company (“ASC”).

     Operating results for the nine months ended September 30, 2008, are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2008. For further information, refer to GATX’s Annual Report on Form 10-K/A, as filed with the Securities and Exchange Commission (“SEC”), which contains the Company’s consolidated financial statements for the year ended December 31, 2007.

     The Company’s former Air segment has been segregated as discontinued operations for all periods presented; see “Discontinued Operations” for additional information.

     The following table presents a financial summary of GATX’s operating segments:

     GATX’s return on equity (“ROE”) is based on income from continuing operations and is shown for the trailing twelve months ended September 30:

     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 operating costs that management believes are directly associated with the maintenance or operation of the revenue earning assets. Operating costs include maintenance costs, marine operating costs, asset impairment charges and other operating 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 items are discussed below under 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 an appropriate risk-adjusted cost of capital and is presented on a comparable basis.

     Utilization of Rail’s North American fleet was 97.8% at the end of the quarter, down slightly from 98.0% at the end of the second quarter and 97.9% at the end of the prior year. While North American utilization has remained stable, the active fleet as of September 30, 2008, has declined by approximately 1,300 cars from September 30, 2007, as the effects of railcar sales and significantly higher scrapping activity more than offset new railcar placements. In the current quarter, North American average lease renewal pricing on cars in the GATX Lease Price Index (“LPI”, see definition below) decreased 0.3% over the average expiring lease rates, compared to increases of 5.9% for the second quarter and 11.6% for the first quarter. As expected by the Company, the reduction in the LPI between quarters was driven by higher expiring lease rates, as nominal lease renewal rates between quarters remained flat. The LPI is likely to continue to trend lower in the intermediate term due to a combination of higher expiring lease rates and flat or lower nominal lease renewal rates. Lease terms on renewals for LPI cars averaged 57 months in the third quarter of 2008, compared to 63 months for the previous quarter and 65 months for the first quarter of 2008. The North American rail market continues to demonstrate weakness, particularly impacting demand for railcars serving housing and automotive related industries. However, general service tank cars, which comprise the core of Rail’s fleet, continue to experience stable demand and attractive long term lease rates. In Europe, fleet utilization decreased slightly to 97.6% from 97.7% at the end of the second quarter, reflecting seasonal delays in placing newly delivered railcars on lease.

     The LPI is an internally generated business metric that is designed to gauge the performance of 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.

     During the first nine months of 2008, Rail’s portfolio investments were $266.7 million compared to $311.9 million for the comparable prior year period. Rail’s portfolio investments in 2008 have consisted primarily of new railcars acquired pursuant to existing commitments. Additionally, during the first nine months of 2008, Rail acquired 3,628 of previously leased-in railcars for $70.1 million and the assumption of $74.7 million of related nonrecourse debt.

     During the first nine months of 2008, GATX conducted extensive analyses regarding a number of railcar portfolio acquisition opportunities. Ultimately, the Company’s view of the current market value of these portfolios was significantly lower than the view of the sellers, thus these opportunities did not warrant further pursuit. Costs of approximately $5 million were incurred as part of this review and analysis process, all of which were reported as a selling, general and administrative expense in the current quarter. It is possible that other railcar portfolio acquisition opportunities may become available in the current market environment. GATX will continue to be diligent in pursuing opportunities should they materialize. Any such transaction will be executed if the Company believes it will result in attractive returns for our shareholders and a capital structure that maintains our access to attractively priced capital.

     Components of Rail’s operating results are outlined below (in millions):

     Components of Rail’s lease income for the three and nine months ended September 30 are outlined below (in millions):