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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2328
GATX Corporation
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Incorporated in the IRS Employer Identification Number
State of New York 36-1124040
500 West Monroe Street
Chicago, IL 60661-3676
(312) 621-6200
Securities Registered Pursuant to Section 12(b) of the Act:
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Name of each exchange on
Title of each class or series which registered
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Common Stock New York Stock Exchange
Chicago Stock Exchange
London Stock Exchange
$2.50 Cumulative Convertible Preferred Stock, New York Stock Exchange
Series A Chicago Stock Exchange
$2.50 Cumulative Convertible Preferred Stock, New York Stock Exchange
Series B Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
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 ____
As of March 15, 1999, 49,433,536 common shares were outstanding, and
the aggregate market value of the common shares (based upon the March 15, 1999
closing price of these shares on the New York Stock Exchange) of GATX
Corporation held by nonaffiliates was approximately $1,733.3 million.
Documents Incorporated by Reference
Portions of the GATX Annual Report to Shareholders for the year ended
December 31, 1998 are incorporated by reference into Parts I and II. Portions of
GATX's proxy statement dated March 17, 1999 are incorporated by reference into
Part III.
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PART I
Item 1. Business
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GATX Corporation is a holding company whose subsidiaries engage in the leasing
and management of railroad tank cars and specialized freight cars; provide
equipment and capital asset financing and related services; own and operate tank
storage terminals, pipelines and related facilities; engage in Great Lakes
shipping; and provide distribution and logistics support services and
warehousing facilities. Information concerning financial data of business
segments and the basis for grouping products or services is contained in Exhibit
13, GATX Annual Report to Shareholders for the year ended December 31, 1998 on
pages 29 through 33, which is incorporated herein by reference (page references
are to the Annual Report to Shareholders).
Industry Segments
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Railcar Leasing and Management
------------------------------
General American Transportation Corporation ("General American"), headquartered
in Chicago, Illinois, is principally engaged in leasing specialized railcars,
primarily tank cars, under full service leases. As of December 31, 1998, its
North American fleet consisted of approximately 85,700 railcars, comprised of
66,000 tank cars and 19,700 specialized freight cars, including conventional and
Airslide(TM) covered hopper cars. In addition to 74,900 railcars in the United
States, General American has 9,400 railcars in its Canadian fleet and 1,400
railcars in its Mexican fleet. The utilization rate of General American's North
American railcar fleet as of December 31, 1998 was approximately 95%. General
American's railcars have a depreciable life of 20 to 33 years and an average age
of approximately 15 years.
In addition to the North American fleet, General American's investments in
affiliates result in ownership interests in two European fleets. General
American owns a 40% interest in KVG Kesselwagen Vermietgesellschaft mbH, a
German and Austrian-based tank car and specialty railcar leasing company, and a
12.5% interest in AAE Cargo, headquartered in Switzerland.
General American's customers use its railcars to ship over 700 different
commodities, primarily chemicals, petroleum, and food products. For 1998,
approximately 52% of railcar leasing revenue was attributable to shipments of
chemical products, 28% to food and other products, and 20% to petroleum
products. General American leases railcars to over 700 customers, including
major chemical, oil, food and agricultural companies. No single customer
accounts for more than 4% of total railcar leasing revenue.
General American typically leases new railcars to its customers for a term of
five years or longer, whereas renewals or leases of existing cars are typically
for periods ranging from less than a year to seven years with an average lease
term of about three years. General American purchases most of its new railcars
from Trinity Industries, Inc. ("Trinity"), a Dallas-based metal products
manufacturer. Under its full service leases, General American maintains and
services its railcars, pays ad valorem taxes, and provides many ancillary
services. Through its Internet website, General American provides customers with
timely analysis, performance statistics, and mechanical record information to
enhance and maximize the utilization of their leased railcars. General American
also maintains a network of major service centers consisting of four domestic,
three Canadian and one Mexican facility. To supplement the eight major service
centers, General American utilizes a fleet of mobile trucks and also utilizes
independent third-party repair shops.
The full-service railcar leasing industry is comprised of General American,
Union Tank Car Company, General Electric Railcar Services Corporation, and many
smaller companies. As of the end of 1998, General American had 24% of the
251,000 tank cars owned and leased in the United States. Principal competitive
factors include price, service and availability.
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Financial Services
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GATX Capital Corporation ("Capital"), headquartered in San Francisco,
California, provides asset-based financing, structures transactions for
investment by other lessors, and manages lease portfolios for third parties.
Asset-based financing is provided primarily to the aircraft, rail, technology,
and marine industries. These financings, which are held within Capital's own
portfolio and through partnerships with coinvestors, are structured as leases
and secured loans, and frequently include interests in the asset's residual
value. For its transaction structuring and portfolio management services,
Capital receives fees at the time the transaction is completed, an asset is
remarketed, and/or on an ongoing basis. The company also sells technology
equipment and provides technical services on the equipment it sells.
Capital competes with captive leasing companies, leasing subsidiaries of
commercial banks, independent leasing companies, lease brokers, investment
bankers, and financing arms of equipment manufacturers. In addition to its San
Francisco home office, Capital has 4 domestic and 11 foreign offices.
Terminals and Pipelines
-----------------------
GATX Terminals Corporation ("Terminals") is engaged in the storage, handling and
transfer of petroleum and chemical commodities at key points in the bulk liquid
distribution chain. Terminals' facilities, which are located near major
transportation points, are capable of receiving and shipping bulk liquids by
ship, rail, barge and truck. Many of the terminals also are linked with major
interstate pipelines. In addition to storing, handling and transferring bulk
liquids, Terminals provides blending and testing services at most of its
facilities. Terminals, headquartered in Chicago, Illinois, owns and operates 15
terminal sites throughout the United States, and also has interests in European,
Asian, and Mexican facilities. In addition to storage facilities, Terminals owns
or holds interests in four refined product pipeline systems.
For 1998, 53% of Terminals' revenue was derived from petroleum storage, 24% from
chemical storage, and 23% from pipelines. Demand for Terminals' facilities
depends in part upon demand for petroleum and chemical products and is also
affected by refinery output, foreign imports, availability of other storage
facilities, and the expansion of its customers into new geographical markets.
Terminals serves over 500 customers, including major oil and chemical companies
as well as trading firms and larger independent refiners. No single customer
accounts for more than 7% of Terminals' gross income.
Terminals, along with two Dutch companies, Pakhoed N.V. and Van Ommeren N.V.,
are the three major international public terminaling companies. Pakhoed carries
out its operations under the name Paktank. The domestic public terminaling
industry consists of Terminals, Paktank Corporation, International Matex Tank
Terminals (a joint venture in which Van Ommeren participates), and many smaller
independent terminaling companies. In addition to public terminaling companies,
oil and chemical companies also have significant storage capacity and compete
with Terminals in a number of markets. Terminals' pipelines compete with rail,
trucks and other pipelines for movement of liquid petroleum products.
Logistics and Warehousing
-------------------------
GATX Logistics, Inc. ("Logistics") is one of the largest third-party providers
of distribution and logistics support services and warehousing facilities in the
United States. Headquartered in Jacksonville, Florida, Logistics operates
approximately 100 facilities throughout North America, totaling 23 million
square feet of warehousing space. Examples of services provided are integrated
logistics solutions, just-in-time delivery systems, packaging, sub-assembly,
freight management, and returns management.
Logistics serves over 360 major customers, many of which are Fortune 1000
manufacturers and retailers. Logistics competes primarily with in-house or
private operations and with other national operators such as
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Ryder Integrated Logistics and Excel Logistics, multi-regional and local
operators, and major trucking companies.
Industries from which Logistics' derives 10% or more of its revenue include
automotive/industrial (34%), food and grocery (18%), consumer products (16%),
and electronics and computers (11%). No single customer accounts for more than
10% of Logistics' revenue.
Great Lakes Shipping
--------------------
American Steamship Company ("ASC"), with the largest carrying capacity of the
domestic Great Lakes vessel fleets, provides modern and efficient waterborne
transportation of dry bulk materials to the integrated steel, electric utility
and construction industries. ASC's eleven self-unloading vessels range in size
from 635 feet to 1,000 feet.
ASC, headquartered in Williamsville, New York, primarily transports iron ore,
coal, and limestone aggregate. ASC's gross income source by industry served
during 1998 was 50% steel, 24% construction, 17% power generation, and 9% other.
ASC's largest customer accounts for 25% of gross income.
ASC competes with three other U.S. flag Great Lakes commercial fleets, which are
USS Great Lakes Fleet, Inc., Oglebay Norton Company, and Interlake Steamship,
and with steel companies which operate captive fleets.
Trademarks, Patents and Research Activities
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Patents, trademarks, licenses, and research and development activities are not
material to these businesses taken as a whole.
Seasonal Nature of Business
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Great Lakes shipping is seasonal due to the effects of winter weather
conditions. However, seasonality is not considered significant to the operations
of GATX and its subsidiaries taken as a whole.
Customer Base
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GATX as a whole is not dependent upon a single customer or a few customers. The
loss of a key customer, however, could have a material adverse effect on the
results of the Logistics and Warehousing or Great Lakes shipping segments.
Employees
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GATX and its subsidiaries have approximately 6,000 active employees, of whom 19%
are hourly employees covered by union contracts.
Environmental Matters
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Certain operations of GATX's subsidiaries (collectively "GATX") present
potential environmental risks principally through the transportation or storage
of various commodities. Recognizing that some risk to the environment is
intrinsic to its operations, GATX is committed to protecting the environment as
well as complying with applicable environmental protection laws and regulations.
GATX, as well as its competitors, is subject to extensive regulation under
federal, state and local environmental laws which have the effect of increasing
the costs and liabilities associated with the conduct of its operations. In
addition, GATX's foreign operations are subject to environmental laws in effect
in each respective jurisdiction.
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GATX's policy is to monitor and actively address environmental concerns in a
responsible manner. GATX has received notices from the U.S. Environmental
Protection Agency ("EPA") that it is a potentially responsible party (PRP) for
study and clean-up costs at 13 sites under the requirements of the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(Superfund). Under these Acts and comparable state laws, GATX may be required to
share in the cost to clean-up various contaminated sites identified by the EPA
and other agencies. GATX has also received notice that it is a PRP at one site
to undertake a Natural Resource Damage Assessment. In all instances, GATX is one
of a number of financially responsible PRPs and has been identified as
contributing only a small percentage of the contamination at each of the sites.
Due to various factors such as the required level of remediation or restoration
and participation in clean-up or restoration efforts by others, GATX's total
clean-up costs at these sites cannot be predicted with certainty; however,
GATX's best estimates for remediation and restoration of these sites have been
determined and are included in its environmental reserves.
Future costs of environmental compliance are indeterminable due to unknowns such
as the magnitude of possible contamination, the timing and extent of the
corrective actions that may be required, the determination of the company's
liability in proportion to other responsible parties, and the extent to which
such costs are recoverable from third parties including insurers. Also, GATX may
incur additional costs relating to facilities and sites where past operations
followed practices and procedures that were considered acceptable at the time
but in the future may require investigation and/or remedial work to ensure
adequate protection to the environment under current or future standards. If
future laws and regulations contain more stringent requirements than presently
anticipated, expenditures may be higher than the estimates, forecasts, and
assessments of potential environmental costs provided below. However, these
costs are expected to be at least equal to the current level of expenditures. In
addition, GATX has provided indemnities for environmental issues to the buyers
of three divested companies for which GATX believes it has adequate reserves.
GATX's environmental reserve at the end of 1998 was $74 million and reflects
GATX's best estimate of the cost to remediate known environmental conditions.
Additions to the reserve were $14 million in 1998 and $11 million in 1997.
Expenditures charged to the reserve amounted to $12 million and $14 million in
1998 and 1997, respectively.
In 1998, GATX made capital expenditures of $5 million for environmental and
regulatory compliance compared to $13 million in 1997. These projects included
marine vapor recovery systems, discharge prevention compliance, waste water
systems, impervious dikes, tank modifications for emissions control, and tank
car cleaning systems. Environmental projects authorized or planned would require
capital expenditures of approximately $7 million in 1999. GATX anticipates it
will make annual expenditures at approximately the same level over each of the
next three years.
Item 2. Properties
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Information regarding the location and general character of certain properties
of GATX is included in Item 1, Business, of this document and in Exhibit 13,
GATX Annual Report to Shareholders for the year ended December 31, 1998 on page
67, GATX Location of Operations (page reference is to the Annual Report to
Shareholders). The major portion of Terminals' land is owned; the balance,
including some of its dock facilities, is leased. Most of the warehouses
operated by GATX Logistics are leased; the others are managed for third parties.
Item 3. Legal Proceedings
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GATX Capital Corporation ("Capital"), a wholly-owned subsidiary of GATX
Corporation ("the Company"), is a party to actions arising from the issuance by
the Federal Aviation Administration (the "FAA") of Airworthiness Directive
96-01-03 (the "AD"). The AD has the effect of significantly reducing the amount
of freight that ten 747 aircraft may carry. These aircraft (the "Affected
Aircraft") were
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modified from passenger to freighter configuration by GATX/Airlog Company
("Airlog") a California general partnership of which a subsidiary of Capital is
a partner.
The modifications were carried out between 1988 and 1994 by subcontractors of
Airlog under authority of Supplemental Type Certificates ("STC's") issued by the
FAA in 1987 pursuant to a design approved by the FAA. In the AD, the FAA stated
that the STC's were issued in error.
On July 11, 1996 Airlog filed a complaint for Declaratory Judgment against
Evergreen International Airlines, Inc. ("Evergreen") in the United States
District Court for the Northern District of California (No. C95-2494) with
respect to three affected aircraft seeking a declaration that neither Airlog nor
Capital has any liability to Evergreen as a result of the issuance of the AD.
Evergreen filed an answer and counterclaim on August 1, 1996, asserting that
Airlog and Capital are liable to it under a number of legal theories in
connection with the application of the AD to its three aircraft. In an initial
disclosure statement, Evergreen alleges damages which it calculated as follows:
(i) out-of-service costs amounting to approximately $16.2 million as of October
15, 1996; (ii) denial of access to then currently favorable capital markets,
resulting in an alleged inability to issue shares in an initial public offering
with a value of as much as $ 1.8 billion; (iii) lost flight revenues and profits
amounting to approximately $25.8 million; (iv) lost business opportunities and
profits attributable to Evergreen's diminished 747 fleet capacity (which
Evergreen did not quantify, but indicated is subject to further calculation);
and maintenance costs in responding to the AD (and to related airworthiness
directives issued by the FAA) of approximately $1.6 million as of March 1996.
The counterclaim also seeks exemplary and punitive damages in an unspecified
amount. In a subsequent case management statement, Evergreen claims that it
seeks recovery for out-of-pocket losses, lost revenues, lost profits, lost
business opportunities, maintenance work, repair costs and capital losses in an
amount that exceeds $145 million.
On June 5, 1997, the Court ruled on Airlog's previously filed Motion for Partial
Summary Judgment. The Court ruled that the Purchase Agreement covering one
Evergreen aircraft was a contract for the sale of goods, and that claims
thereunder were barred by the four-year statute of limitations under the
California Commercial Code (the "Code"); but that the Modification Agreements
covering two aircraft owned by Evergreen were contracts of services not governed
by the Code, and that any applicable statute of limitations did not begin to run
until Evergreen had, or should have had, knowledge of the alleged breach. The
Court also denied Airlog's motion for Summary Judgment with respect to
Evergreen's counterclaim in which it alleged that Airlog negligently
misrepresented certain facts, which purportedly induced Evergreen to enter into
the Purchase and Modification Agreements. The Court's ruling bars Evergreen from
recovering under its claim for breach of warranty under the Purchase Agreement,
and permits Evergreen (subject to reconsideration or appeal) to proceed with its
claim for breach of warranty under the Modification Agreements and its claim of
negligent misrepresentation. The ruling does not represent a decision that
Evergreen is entitled to prevail on those claims. Airlog and Capital have other
defenses to those claims, which they are vigorously asserting.
On December 27, 1998, Evergreen filed a motion for summary judgment regarding
two Affected Aircraft, seeking to have the Court adjudicate whether Airlog
breached its warranty under the Modification Agreements and whether Airlog may
enforce against Evergreen the damage disclaimers and limitations in the
Modification Agreements. Evergreen also seeks a ruling from the Court that it is
entitled to judgment against Capital for Airlog's alleged breach of the warranty
in the Modification Agreement covering one of the Affected Aircraft. A hearing
on this motion is currently scheduled for May 13, 1999.
On January 31, 1997, American International Airways, Inc. ("AIA") filed a
complaint in the United States District Court for the Northern District of
California (C97-0378) against Airlog, Capital, Airlog Management Corp., and
others asserting that Airlog and Capital are liable to it under a number of
legal theories in connection with the application of the AD to two Affected
Aircraft owned by AIA. The Complaint seeks damages (to be trebled under one
count of the complaint) of an unspecified amount relating to lost revenues, lost
profits, denied access to capital markets, repair costs, disruption of its
business plan, lost business opportunities, maintenance and engineering costs,
and other additional consequential, direct, incidental and related damages. The
Complaint asks in the alternative for a
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rescission of AIA's agreements with Airlog, a return of amounts paid, and for
injunctive relief directing that Airlog, and certain individual defendants,
properly staff and manage the correction of the alleged deficiencies that caused
the FAA to issue the AD. In a Joint Case Management Statement and Proposed
Order, AIA alleges that it sustained damages of $43.8 million through May 31,
1997, and further alleges that it will continue to accrue loss of use damages of
at least $1.8 million per month until the aircraft are operational.
On June 4, 1997, Tower Air, Inc. filed an action in the Supreme Court of the
State of New York, County of New York (Index No. 97/602851) against Capital,
Airlog, an officer of Capital and others with respect to one Affected Aircraft
it leased and subsequently purchased from a trust for the benefit of an
affiliate of Airlog in December 1994. This action asserts causes of action in
fraud and deceit, negligent misrepresentation, breach of contract and negligence
and seeks damages in excess of $25 million together with interest, costs,
attorneys' fees, and punitive damages.
On February 25, 1998, The Bank of New York filed an action, as beneficial owner
of an Affected Aircraft, in the United States District Court for the Northern
District of California (No. C98-0385) against Airlog, Capital, and others. This
aircraft was originally converted by Airlog for Evergreen. This action seeks
declaratory relief and asserts claims for breach of contract, intentional
misrepresentation, nondisclosure of known facts, negligence, negligent
misrepresentation, and unfair competition. The suit alleges damages of a minimum
of $262,000 per month in lost rent and storage costs, unspecified maintenance
and related expenses, diminution in the value of its aircraft by well in excess
of $10 million plus the costs of aircraft inspection and modifications to comply
with the AD, "Anticipated to be in the millions of dollars." Claims for
interest, injunctive relief, restitution and attorneys' fees are also included.
On June 15, 1998, General Electric Capital and PALC II, Inc. (collectively
"GECC") filed a complaint in the United States District Court for the Northern
District of California (C98-2387) against Airlog, Capital, and others with
respect to three Affected Aircraft. These aircraft were modified in 1991 and
1992. In the action GECC asserts that the defendants are liable to it under a
number of legal theories in connection with the application of the AD to the
three aircraft owned by GECC. The complaint seeks unspecified damages (to be
trebled under one count of the complaint), loss of rental income, cost of repair
and loss of value of the aircraft, repair of the aircraft, punitive damages and
costs of suit (including attorneys' fees).
Airlog, Capital, and others have filed an action in the United States District
Court for the Northern District of California against Pemco Aeroplex, Inc.
(C97-2484WHO), a contractor for Airlog which obtained the STCs and modified
certain of the Affected Aircraft, alleging causes of action for fraudulent and
negligent misrepresentation, breach of contract, professional negligence,
implied and equitable indemnity, and contribution. This action seeks a judgment
awarding the plaintiffs any and all damages, costs and expenses in connection
with the resolution of the concerns of the FAA as expressed in the AD or
relating to it, repairing the Affected Aircraft, defending against the
litigation involving the plaintiffs arising from the Affected Aircraft, paying
any judgments against plaintiffs that may be entered in said litigation and
attorneys' fees incurred by the plaintiffs in connection with defending said
litigation.
On July 24, 1998, Airlog filed an action in United States District Court for the
Western District of Washington against the United States of America (C98-1029).
This action is to recover losses suffered by Airlog as a result of the alleged
negligence of the FAA in the development and approval of the design to convert
the Affected Aircraft from passenger to freighter configuration. The complaint
seeks damages in excess of $8.3 million representing the expenses incurred by
Airlog in responding to the AD and legal fees and costs incurred by Airlog in
defending the litigation described above.
On January 25, 1999, the FAA issued a letter to Airlog stating that satisfactory
accomplishment of a number of Airlog generated Service Bulletins on an Affected
Aircraft would remove the limitations of the AD. On or about February 26, 1999,
the first Affected Aircraft, owned by Evergreen, returned to revenue service
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While the results of any litigation are impossible to predict with certainty,
Capital believes that each of the foregoing claims is without merit, and that
Capital and Airlog have adequate defenses thereto.
General American Transportation Corporation ("GATC") and GATX Terminals
Corporation ("Terminals"), each subsidiaries of GATX Corporation ("the
Company"), are two of nine defendants in the matter of In re New Orleans Train
Car Leakage Fire Litigation (No. 87-16374, Civil District Court for the Parish
of Orleans), a class action lawsuit arising out of a September 1987 tank car
fire in the City of New Orleans. The fire was caused by a leak of butadiene from
a railcar owned by GATC. The fire resulted in no deaths or significant injuries,
and only minor property damage, but did result in the overnight evacuation of a
number of residents from the surrounding area. Immediately after the fire a
number of lawsuits (representing approximately 8,000 claims) were brought
against a number of defendants, including GATC and its wholly-owned subsidiary
Terminals. The suits were ultimately consolidated into a class action brought in
the Civil District Court in the Parish of Orleans (the "Trial Court"). A trial
of the claims of twenty of the plaintiffs resulted in a jury verdict in
September 1997 which awarded the twenty plaintiffs approximately $1.9 million in
compensatory damages plus interest from the date of the accident. In addition,
the jury awarded punitive damages totaling $3.4 billion against five of the nine
defendants, including $190 million to Terminals. On October 31, 1997, the
Louisiana Supreme Court held that a judgment incorporating the amount of
punitive damages could not be entered until all liability issues relating to all
8,000 class members have been adjudicated.
On June 18, 1998, the Trial Court entered a judgment (a) finding each of the
defendants responsible for compensatory damages to the members of the plaintiff
class in the specified percentages in the jury verdict, including twenty percent
as to GATC and ten percent to Terminals, but without specifying the quantum of
damages; and (b) finding five of the defendants, including Terminals, liable for
punitive damages in favor of the plaintiff class. The Trial Court designated the
judgment to be final and appealable. On June 25, 1998, the defendants filed post
judgment motions seeking a new trial or alternatively seeking to overturn the
finding of punitive liability for lack of sufficient evidence. The motions were
taken under advisement.
The Trial Court has ordered the commencement of trials of the claims of other
members of the class. The trial to determine the damages, if any, suffered by
the second set of twenty claimants is scheduled to commence on May 24, 1999. Two
weeks after the conclusion of this trial, a random selection of an additional
group of plaintiffs will be made in order that the trial of their damage claims
may commence thereafter.
On February 24, 1999, the Louisiana Supreme Court (1) denied the writ seeking to
delay any additional trials, (2) granted the writ requiring entry of a judgment
on the Phase I compensatory damages, and (3) authorized the Trial Court to enter
judgment awarding a specific amount of punitive damages to the twenty Phase I
plaintiffs (without specifying the method of allocation of such damages) in
order that there could be immediate review of the judgment. In view of the
Supreme Court's ruling, the Trial Court determined that it could not decide
pending post-trial motions and that such motions would not be addressed until
after entry of a new judgment. Pursuant to the Supreme Court's ruling, on March
17, 1999 the Trial Court announced it would enter judgments awarding punitive
damages against each of the five punitive defendants, including judgments in the
amount of $23,611 against Terminals in favor of each of the twenty claimants
whose cases were tried in September 1997.
GATC and Terminals believe that the compensatory damages awarded to the first
twenty plaintiffs are excessive, and intend to pursue post-judgment review of
the awards, and if necessary, vigorous appeals of any final judgment. Terminals
also believes that the punitive liability judgment is unsupported by law and the
evidence and intends to pursue appeals of all aspects of the punitive damages
judgment if it survives post-judgment review.
Although approximately 8,000 claims have been made, GATC and Terminals believe
that the damages, if any, that are finally awarded to the remaining plaintiffs
will on average be substantially less that the damages awarded to the twenty
plaintiffs whose claims have been tried.
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As previously reported, various lawsuits had been filed in the Superior Court
for the State of California against GATX Terminals Corporation and its
subsidiary Calnev Pipeline Company arising out of a May 1989 explosion in San
Bernardino, California. All of those lawsuits have been settled, dismissed or
otherwise resolved.
GATX and its subsidiaries are engaged in various matters of litigation including
but not limited to those matters described above, and have a number of
unresolved claims pending, including proceedings under governmental laws and
regulations related to environmental matters. While the amounts claimed are
substantial and the ultimate liability with respect to such litigation and
claims cannot be determined at this time, it is the opinion of management that
damages, if any, required to be paid by GATX and its subsidiaries in the
discharge of such liability are not likely to be material to GATX's consolidated
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
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None.
Executive Officers of the Registrant
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Pursuant to General Instruction G(3), the following information regarding
executive officers is included in Part I in lieu of inclusion in the GATX Proxy
Statement:
<TABLE>
<CAPTION>
OFFICE
HELD
NAME OFFICE HELD SINCE AGE
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<S> <C> <C> <C>
Ronald H. Zech Chairman, President and Chief Executive Officer 1996 55
David M. Edwards Senior Vice President and Chief Financial Officer 1994 47
David B. Anderson Vice President, Corporate Development, General 1995 57
Counsel and Secretary
William L. Chambers Vice President, Human Resources 1993 61
Gail L. Duddy Vice President, Compensation, Benefits and 1997 46
Corporate Human Resources
Brian A. Kenney Vice President, Finance 1998 39
Ralph L. O'Hara Controller and Chief Accounting Officer 1986 54
Clifford J. Porzenheim Vice President, Corporate Strategy 1999 35
Thomas W. Reedy Treasurer 1998 34
</TABLE>
Officers are elected annually by the Board of Directors. Previously, Mr. Zech
was President of GATX Financial Services from 1985 to 1994. In 1994 Mr. Zech was
elected as President and Chief Operating Officer of GATX. On January 1, 1996, he
was elected as Chief Executive Officer and on April 26, 1996, Chairman. Mr.
Edwards was Vice President, Finance and Chief Financial Officer of GATX from
1994 to 1998. Prior to that he as the Senior Vice President - Finance and
Administration of GATX Financial Services from 1990 to 1994. Mr. Anderson was
Vice President, Corporate Development, General Counsel and Secretary of Inland
Steel Industries from 1986 until 1995. Concurrently, he served as President of
Inland Engineered Materials Corporation. Mr. Chambers was engaged in human
resource consulting from 1991 until 1993. Ms. Duddy joined GATX in 1992 as
Director of Compensation and in
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1995 also assumed responsibility for the benefits function. Prior to coming to
GATX, Ms. Duddy served as a Senior Compensation Consultant at William M. Mercer,
Inc. Mr. Kenney was Vice President and Treasurer of GATX from 1997 to 1998 and
Treasurer from 1995 to 1996. Mr. Kenney was the Managing Director, Corporate
Finance and Banking, for AMR Corporation from 1990-1995. Mr. Porzenheim was the
Director of Corporate Development for GATX from 1996 to 1998. Mr. Porzenheim was
a consultant with the Boston Consulting Group from 1993 to 1996. Mr. Reedy was
the Assistant Treasurer, Corporate Finance for GATX from 1996 to 1998. From 1991
to 1996 Mr. Reedy served as Principal - Corporate Finance for AMR Corporation.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
- --------------------------------------------------------------------------------
Information required by this item is contained in Exhibit 13, GATX Annual Report
to Shareholders for the year ended December 31, 1998 on page 61, which is
incorporated herein by reference (page reference is to the Annual Report to
Shareholders).
Item 6. Selected Financial Data
- --------------------------------
Information required by this item is contained in Exhibit 13, GATX Annual Report
to Shareholders for the year ended December 31, 1998, on pages 62 and 63, which
is incorporated herein by reference (page references are to the Annual Report to
Shareholders). Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Information required by this item is contained in Item 1, Business, section of
this document and in Exhibit 13, GATX Annual Report to Shareholders for the year
ended December 31, 1998, the management's discussion and analysis of 1998
compared to 1997 on pages 29, 30, 31, 35, 37 and 39 through 42, the financial
data of business segments on pages 32 and 33, and the management's discussion
and analysis of 1997 compared to 1996 on pages 64 through 66, which is
incorporated herein by reference (page references are to the Annual Report to
Shareholders).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Information required by this item is contained in Exhibit 13, GATX Annual Report
to Shareholders for the year ended December 31, 1998, the management's
discussion and analysis of 1998 compared to 1997 on page 40 which is
incorporated by reference herein (page reference is to the Annual Report to
Shareholders).
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The following consolidated financial statements of GATX Corporation, included in
Exhibit 13, GATX Annual Report to Shareholders for the year ended December 31,
1998, which is incorporated herein by reference (page references are to the
Annual Report to Shareholders):
Consolidated Statements of Operations - Years Ended December 31, 1998,
1997 and 1996 on page 34.
Consolidated Balance Sheets - December 31, 1998 and 1997, on page 36.
Consolidated Statements of Cash Flows - Years Ended December 31, 1998,
1997 and 1996, on page 38.
Consolidated Statements of Changes in Shareholders' Equity - December
31, 1998, 1997, and 1996, on page 43.
Consolidated Statements of Comprehensive Income (Loss) - Years Ended
December 31, 1998, 1997 and 1996, on page 43.
Notes to Consolidated Financial Statements on pages 44 through 60.
9
<PAGE> 11
Consolidated quarterly financial data is contained in Exhibit 13, GATX Annual
Report to Shareholders for the year ended December 31, 1998 on page 61, which is
incorporated herein by reference (page reference is to the Annual Report to
Shareholders).
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information required by this item regarding directors is contained in sections
entitled "Nominees For Directors" and "Additional Information Concerning
Nominees" in the GATX Proxy Statement dated March 17, 1999, which sections are
incorporated herein by reference. Information regarding officers is included at
the end of Part I.
Item 11. Executive Compensation
- --------------------------------
Information required by this item regarding executive compensation is contained
in sections entitled "Compensation of Directors" and "Compensation of Executive
Officers" in the GATX Proxy Statement dated March 17, 1999, which sections are
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information required by this item regarding the Company's Common Stock is
contained in sections entitled "Nominees For Directors," "Security Ownership of
Management" and "Beneficial Ownership of Common Stock" in the GATX Proxy
Statement dated March 17, 1999, which sections are incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
None.
10
<PAGE> 12
PART IV
Item 14. Financial Statement Schedules, Reports on Form 8-K and Exhibits.
- --------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
(a) 1. Financial Statements
The following consolidated financial statements of
GATX Corporation included in the Annual Report to
Shareholders for the year ended December 31, 1998, are
filed in response to Item 8:
Consolidated Statements of Operations - Years Ended
December 31, 1998, 1997 and 1996.
Consolidated Balance Sheets - December 31, 1998 and 1997.
Consolidated Statements of Cash Flows - Years Ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Changes in Shareholders'
Equity - December 31, 1998, 1997, and 1996.
Consolidated Statements of Comprehensive Income (Loss)
- Years Ended December 31, 1998, 1997, and 1996.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules: Page
----------------
Schedule I Condensed Financial Information of Registrant 17 - 20
Schedule II Valuation and Qualifying Accounts 21
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and, therefore, have
been omitted.
(b) Report on Form 8-K.
Form 8-K filed on July 30, 1998 reporting adoption on
July 24, 1998 of shareholders' rights plan and an
advanced notice amendment to GATX's By-Laws.
(c) Exhibit Index
Exhibit
Number Exhibit Description Page
- -------------- ------------------------------------------------------------- ----------------
3A. Restated Certificate of Incorporation of GATX
Corporation, as amended, incorporated by reference to
GATX's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, file number 1-2328.
3B. By-Laws of GATX Corporation, as amended and restated
as of July 29, 1994 on Form 10-K for the fiscal year
ended December 31, 1994, file number 1-2328.
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Page
- -------------- ------------------------------------------------------------------------------ ----------------
<S> <C> <C>
10A. GATX Corporation 1985 Long Term Incentive Compensation Plan, as
amended, and restated as of April 27, 1990, incorporated by reference
to GATX's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, file No. 1-2328. Amendment to said Plan effective
as of April 1, 1991, incorporated by reference to GATX's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991, file number
1-2328; Sixth Amendment to said Plan effective January 31,1997,
incorporated by reference to GATX's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, file number 1-2328.
10B. GATX Corporation 1995 Long Term Incentive Compensation Plan,
incorporated by reference to GATX's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1995, file number
1-2328. First Amendment of said Plan effective as of January 31,
1997 submitted to the SEC on Form 10-K for the fiscal year ended
December 31, 1996, file number 1-2328. Second Amendment of said
Plan effective as of December 5, 1997 incorporated by reference
to GATX's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, file number 1-2328.
10C. GATX Corporation Deferred Fee Plan for Directors, as Amended and
Restated as of July 1, 1998, submitted to the SEC along with the
electronic submission of this Report on Form 10-K.
10D. 1984 Executive Deferred Income Plan Participation Agreement between
GATX Corporation and participating directors and executive executive
officers dated September 1, 1984, as amended, incorporated by
reference to GATX's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, file number 1-2328.
10E 1985 Executive Deferred Income Plan Participation Agreement between
GATX Corporation and participating directors and executive officers
. dated July 1, 1985, as amended, incorporated by reference to GATX's
Annual Report on Form 10-K for the fiscal year ended December 31,
1991, file number 1-2328.
10F 1987 Executive Deferred Income Plan Participation Agreement between
GATX Corporation and participating directors and executive officers
dated December 31, 1986, as amended, incorporated by reference to
GATX's Annual Report on Form 10-K for the fiscal year ended December
31, 1991, file number 1-2328.
10G Amendment to Executive Deferred Income Plan Participation Agreements
between GATX and certain participating directors and participating
executive officers entered into as of January 1, 1990, incorporated by
reference to GATX's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989, file number 1-2328.
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Page
- -------------- ------------------------------------------------------------------------------ ----------------
<S> <C> <C>
10H. Retirement Supplement to Executive Deferred Income Plan Participation
Agreements entered into as of January 23, 1990, between GATX and
certain participating directors incorporated by reference to GATX's
Annual Report on Form 10-K for the fiscal year ended December 31,
1989, file number 1-2328 and between GATX and certain other
participating directors incorporated by reference to GATX's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990, file
number 1-2328.
10I. Amendment to Executive Deferred Income Plan Participation Agreements
between GATX and participating executive officers entered into as of
April 23, 1993, incorporated by reference to GATX's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, file number
1-2328.
10J. Directors' Deferred Stock Plan approved on July 26,1996, effective as
of April 26, 1996, Summary of Plan incorporated by reference to GATX's
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1996, file number 1-2328.
10K. Agreement for Continued Employment Following Change of Control or
Disposition of a Subsidiary between GATX Corporation and certain
executive officers dated as of January 1, 1998, incorporated by
reference to GATX's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, file number 1-2328.
10L. Letter Agreement dated August 17, 1993 between William Chambers and
GATX, incorporated by reference to GATX's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1995, file number 1-2328.
10M. Letter Agreement dated May 31, 1995 between David B. Anderson and
GATX, incorporated by reference to GATX's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, file number 1-2328.
10N. Arrangements between James J. Glasser and GATX associated with Mr.
Glasser's retirement from GATX as described on page 11 in the Section
of the GATX Proxy Statement dated March 13, 1996 entitled "Termination
of Employment and Change of Control Arrangements" are incorporated
herein by reference thereto, file number 1-2328.
11A. Computation of Basic Net Income (Loss) Per Share. 22
11B. Computation of Diluted Net Income (Loss) Per Share. 23
12. Statement regarding computation of ratios of earnings to combined
fixed charges and preferred stock dividends. 24
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Page
- -------------- ------------------------------------------------------------------------------ ----------------
<S> <C> <C>
13. Annual Report to Shareholders for the year ended December 31, 1998,
pages 27 - 70, with respect to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, file number 1-2328. Submitted to
the SEC along with the electronic submission of this Report on Form
10-K.
21. Subsidiaries of the Registrant. 25
23. Consent of Independent Auditors. 26
24. Powers of Attorney with respect to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, file number 1-2328. Submitted
to the SEC along with the electronic submission of this Report on Form
10-K.
27. Financial Data Schedule for GATX Corporation for the fiscal year ended
December 31, 1998, file number 1-2328. Submitted to the SEC along with
the electronic submission of this Report on Form 10-K.
99A. Undertakings to the GATX Corporation Salaried Employees Retirement
Savings Plan, incorporated by reference to GATX's Annual Report on
Form 10-K for the fiscal year ended December 31, 1982, file number
1-2328.
99B. Undertakings to the GATX Corporation 1995 Long Term Incentive Plan for
the fiscal year ended December 31, 1995, file number 1-2328, incorporated
by reference to GATX's Annual Report on Form 10-K for the year ended
December 31, 1995.
99C. Undertakings to the GATX Logistics Inc. 401(k) Cash Accumulation Plan
incorporated by reference to the Form S-8 Registration Statement filed
with the SEC on June 19,1996, Registration No.33-06315.
99D. Undertakings to the Centron DPL Company, Inc. Profit Sharing Plan Plan
incorporated by reference to the Form S-8 Registration Statement filed
with the SEC on December 23, 1997, Registration No.33-43113.
</TABLE>
14
<PAGE> 16
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
GATX Corporation
We have audited the consolidated financial statements and related schedules of
GATX Corporation and subsidiaries listed in Item 14 (a)(1) and (2) of the Annual
Report on Form 10-K of GATX Corporation and subsidiaries for the year ended
December 31, 1998. These financial statements and related schedules are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements and related schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and related
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and related schedules. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of GATX
Corporation and subsidiaries at December 31, 1998 and 1997, and the results of
their operations and cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
January 26, 1999
Chicago, Illinois
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Ronald H. Zech
------------------------------------
Ronald H. Zech
Chairman, President and
Chief Executive Officer
March 19, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Ronald H. Zech
- ---------------------------------------------
Ronald H. Zech Chairman, President and
March 19, 1999 Chief Executive Officer
/s/ David M. Edwards
- ---------------------------------------------
David M. Edwards Senior Vice President and
March 19, 1999 Chief Financial Officer
/s/ Ralph L. O'Hara
- ---------------------------------------------
Ralph L. O'Hara Controller and
March 19, 1999 Chief Accounting Officer
James M. Denny Director By /s/ David B. Anderson
Richard Fairbanks Director --------------------------------------------
William C. Foote Director David B. Anderson
Deborah M. Fretz Director (Attorney in Fact)
Richard A. Giesen Director
Miles L. Marsh Director
Charles Marshall Director
Michael E. Murphy Director
John W. Rogers, Jr. Director
Date: March 19, 1999
</TABLE>
16
<PAGE> 18
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GATX CORPORATION
(PARENT COMPANY)
STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------
1998 1997 1996
--------------- --------------- -----------------
<S> <C> <C> <C>
GROSS INCOME (EXPENSE) $ 3.2 $ 1.4 $ (1.3)
COSTS AND EXPENSES
Interest 28.3 29.4 28.4
Provision for depreciation 1.1 1.0 1.0
Selling, general and administrative 22.1 21.2 16.0
--------------- --------------- -----------------
51.5 51.6 45.4
--------------- --------------- -----------------
LOSS BEFORE INCOME TAXES AND SHARE OF
NET INCOME (LOSS) OF SUBSIDIARIES (48.3) (50.2) (46.7)
INCOME TAX BENEFIT (16.6) (17.3) (16.9)
--------------- --------------- -----------------
LOSS BEFORE SHARE OF NET INCOME (LOSS)
OF SUBSIDIARIES (31.7) (32.9) (29.8)
SHARE OF NET INCOME (LOSS) OF SUBSIDIARIES 163.6 (18.0) 132.5
--------------- --------------- -----------------
NET INCOME (LOSS) $131.9 $(50.9) $102.7
=============== =============== =================
</TABLE>
Note: Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform to the 1998 presentation.
17
<PAGE> 19
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONT'D)
GATX CORPORATION
(PARENT COMPANY)
BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ .2 $ 1.1
OPERATING LEASE ASSETS AND FACILITIES 11.7 11.0
Less - Allowance for depreciation (5.4) (4.4)
--------------- --------------
6.3 6.6
INVESTMENT IN SUBSIDIARIES 1,218.4 1,141.4
OTHER ASSETS 13.7 13.9
--------------- --------------
$1,238.6 $1,163.0
=============== ==============
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 10.7 $ 10.7
DUE TO SUBSIDIARIES 484.9 477.9
OTHER DEFERRED ITEMS 10.1 19.0
--------------- --------------
TOTAL LIABILITIES AND DEFERRED ITEMS 505.7 507.6
SHAREHOLDERS' EQUITY
Preferred stock - -
Common stock 34.3 34.1
Additional capital 331.6 322.6
Reinvested earnings 446.0 363.4
Accumulated other comprehensive loss (32.2) (17.9)
--------------- --------------
779.7 702.2
Less - Cost of shares in treasury (46.8) (46.8)
--------------- --------------
TOTAL SHAREHOLDERS' EQUITY 732.9 655.4
--------------- --------------
$1,238.6 $1,163.0
=============== ==============
</TABLE>
18
<PAGE> 20
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONT'D)
GATX CORPORATION
(PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
1998 1997 1996
--------------- --------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 131.9 $(50.9) $ 102.7
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for depreciation 1.1 1.0 1.0
Deferred income tax benefit (8.2) (7.9) (6.8)
Share of net income (loss) of subsidiaries less
dividends received (91.4) 113.3 (59.6)
Other, including working capital (.2) (3.5) (23.5)
--------------- --------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 33.2 52.0 13.8
INVESTING ACTIVITIES
Additions to operating lease assets and facilities (.8) - (1.8)
--------------- --------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (.8) - (1.8)
FINANCING ACTIVITIES
Issuance of common stock under employee benefit
programs and other 9.0 12.4 3.1
Cash dividends to shareholders (49.3) (49.4) (48.0)
Advances from (to) subsidiaries 7.0 (14.1) 32.7
--------------- --------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (33.3) (51.1) (12.2)
--------------- --------------- -------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS $ (.9) $ .9 $ (.2)
=============== =============== =============
</TABLE>
19
<PAGE> 21
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONT'D)
GATX CORPORATION
(PARENT COMPANY)
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
1998 1997 1996
----------------- -------------- ------------
<S> <C> <C> <C>
Net income (loss) $ 131.9 $ (50.9) $ 102.7
Other comprehensive income (loss), net of tax
Foreign currency translation loss (16.3) (28.3) (7.6)
Unrealized gain (loss) on securities, net 2.0 (1.0) 5.6
----------------- -------------- ------------
Other comprehensive loss (14.3) (29.3) (2.0)
----------------- -------------- ------------
COMPREHENSIVE INCOME (LOSS) $ 117.6 $ (80.2) $ 100.7
================= ============== ============
</TABLE>
20
<PAGE> 22
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
GATX CORPORATION AND SUBSIDIARIES
(IN MILLIONS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- -----------------------------------------------------------------------------------------------------------------------------------
Additions
------------------------------------
DESCRIPTION Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts- Deductions at End of
of Period Expenses Describe Describe Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for possible
losses - Note A $ 128.5 $ 14.7 $ 4.3 (B) $ (11.6) (C) $ 135.9
Year ended December 31, 1997:
Allowance for possible
losses - Note A $ 121.1 $ 11.1 $ 3.3 (B) $ (7.0) (C) $ 128.5
Year ended December 31, 1996:
Allowance for possible
losses - Note A $ 100.0 $ 12.5 $ 15.5 (B) $ (6.9) (C) $ 121.1
</TABLE>
Note A - Deducted from asset accounts.
Note B - Represents principally recovery of amounts previously written off.
Note C - Represents principally reductions in asset values charged off or
transferred to claims and uncollectible amounts.
21
<PAGE> 1
EXHIBIT 10C.
GATX Corporation
Deferred Fee Plan
As Amended and Restated
As of July 1, 1998
1. Purpose
The purpose of the Deferred Fee Plan (the "Plan") is to
provide non-officer directors of GATX Corporation (the
"Company") an opportunity to receive that portion of their
annual retainer and meeting attendance fees paid in cash on a
deferred basis, and to provide investment alternatives with
respect thereto.
2. Definitions
Unless the context otherwise requires, the following words as
used herein shall have the following meanings:
(a) "Board" -- The Board of Directors of the Company.
(b) "Directors' Fees" -- The annual retainer and Board
and committee meeting attendance fees paid to each
non-officer director, a portion of which is to be
paid in cash (the "Cash Portion"), and a portion of
which is to be credited to an account established for
each Director in units equal to the number of shares
of GATX Corporation Common Stock which may be
purchased with the amount so credited.
(c) "Participant" -- An eligible member of the Board who
elects to participate in the Plan.
(d) "Deferred Fee" -- That part of the Cash Portion of
the Directors' Fees elected to be deferred hereunder.
(e) "Quarterly Deferral Amount" -- The amount of the
Deferred Fee that would otherwise be payable to a
participating director each calendar quarter during
the term hereof.
3. Eligibility
Each non-officer member of the Board shall be eligible to
participate in the Plan.
4. Election of Deferred Compensation
<PAGE> 2
Each eligible person elected as a director during a calendar
year, may, prior to the beginning of the next calendar
quarter, elect to defer all or any part of the Cash Portion of
his or her Directors' Fees. Eligible directors may elect prior
to the end of any calendar year to participate in the Plan
with respect to Directors' Fees to be paid in the subsequent
calendar year. Once a Participant has made an election to
participate in the Plan, such participation shall continue
from year to year thereafter until withdrawn or changed by
submitting a completed election form before the beginning of
any succeeding calendar year. Elections shall be irrevocable
during each calendar year.
5. Manner of Electing Deferral
A Participant may elect to defer all or any part of the Cash
Portion of his or her fees by giving written notice to the
Administrator of the Plan on the form of election attached
hereto as Exhibit A. Such notice shall include:
(a) the percentage of the Cash Portion of the Directors'
Fees to be deferred,
(b) an election as to whether the amount so deferred
shall be invested in units of phantom stock as
provided in Section 6 hereof or shall bear interest
as provided in Section 7 hereof,
(c) an election to receive payment of the deferred fee
either as a lump sum or in annual installments (not
to exceed ten), and
(d) the date of the lump-sum payment or the first
installment payment (which may be January 15 of the
year following the year in which continuous service
as a director terminates or January 15 of a stated
year preceding the Participant's 71st birthday).
6. Purchase and Valuation of Phantom Stock; Phantom Stock Account
A Phantom Stock Account will be maintained for each director
electing to invest in the Company's Common Stock. During each
fiscal quarter a participating director's election remains in
effect, the number of units of phantom stock to be credited to
the participating director's Phantom Stock Account will be
equal to the result obtained by dividing the Quarterly
Deferral Amount by the average of the high and low price on
the New York Stock Exchange on the last trading days of July,
October, January and April. Until distribution as provided
herein, the director's Phantom Stock Account will be credited
with additional units of phantom stock representing dividends
declared on the Company's Common Stock based on the average of
the high and low price of the Company's Common Stock
2
<PAGE> 3
on the New York Stock Exchange the date such dividend is paid.
The Phantom Stock Account will be merely a bookkeeping entry
on the Company's books so that no trust or escrow arrangement
will be used and the participating director will remain a
general, unsecured creditor with respect to his or her
account. As promptly as practicable following the close of
each calendar year, a statement will be sent to each
Participant reflecting the balance in the Phantom Stock
Account as of the end of such year.
7. Deferred Fee Account
A Deferred Fee Account shall be maintained for each
Participant electing to receive interest on his or her
Deferred Fee. Cash and interest thereon shall be credited to a
Participant's Deferred Fee Account as set forth in the
following paragraph.
Until payment of the Deferred Fees is made to the Participant
in accordance with Section 8, all amounts credited to a
Participant's Deferred Fee Account shall accrue interest at a
rate equal to the twenty-year U.S. Government Bond rate in
effect on the 15th day of January, April, July and October of
each year. Interest shall be compounded monthly. As promptly
as practicable following the close of each calendar year, a
statement will be sent to each Participant reflecting the
balance in the Deferred Fee Account as of the end of such
year.
8. Payment of Deferred Fees
Each Participant shall be entitled to receive a cash payment
equal in amount to the Deferred Fees credited to such
Participant's Deferred Fee Account (less taxes, if any,
required to be withheld by the Federal or any state or local
government and paid over to such government for the
Participant) in accordance with such Participant's election(s)
with respect to date and manner of payment.
Upon the expiration of the deferral period, each Participant
shall be entitled to receive shares of Common Stock equal in
amount to the number of units of Phantom Stock credited to the
director's Phantom Stock Account. The Company shall withhold
the number of shares of Common Stock equal in amount when
liquidated to the taxes, if any, required to be withheld by
the Federal or any state or local government and paid over to
such government for the Participant.
If an election is made to receive payment in annual
installments, the amount of the first payment shall be a
fraction of the balance in either the Phantom Stock Account or
Deferred Fee Account as the case may be, as of the day
preceding such payment, the numerator of which shall be one
and the denominator of which
3
<PAGE> 4
shall be the total number of installments elected. The amount
of each subsequent payment shall be a fraction of the balance
remaining in the Participant's Phantom Stock Account or
Deferred Fee Account as of the day preceding each subsequent
payment, the numerator of which shall be one and the
denominator of which shall be the total number of installments
elected minus the number of installments previously paid. No
withdrawal may be made from a Participant's Phantom Stock
Account or Deferred Fee Account except as provided in this
Section 8.
Any fractional units of Phantom Stock shall be paid in cash.
In the event of a Participant's death, the Participant's
designated beneficiary shall continue to receive payment
according to the Participant's election(s). In the absence of
a designated beneficiary, the balance credited to the
Participant's Phantom Stock Account or Deferred Fee Account
shall be determined as of the date of death, and an amount
equal to such balance shall be paid in a single payment to the
Participant's executor or administrator as soon as reasonably
possible thereafter.
A Participant who has elected installment payments and who is
eligible to receive such payments, or a Participant's
beneficiary, may apply to the Administrator of the Plan for
acceleration of the payments based on hardship and
demonstrated need. The Board of Directors of the Company or a
designated Committee thereof shall consider the merits of each
such application and determine if the facts warrant permitting
such an acceleration. Any such determination of the Board or
Committee shall be final and binding on both parties.
9. Change of Control
Notwithstanding any other provision of the Plan or of Election
Forms executed by Participants hereunder, the full unpaid
balance credited to the Participant's Phantom Stock or
Deferred Fee Account shall be paid in a single payment to the
Participant or the Participant's beneficiary or estate, as
applicable, as promptly as practicable following the
occurrence of both (a) a change in control of GATX Corporation
(as defined below) and (b) the Participant's termination of
services on the Board of Directors of GATX Corporation.
For purposes of this Deferred Fee Plan, the term "change in
control" shall mean the occurrence of any of the following
events:
(a) Receipt by GATX Corporation of a Schedule 13D
report confirming that person (other than (i) a
fiduciary of securities under an employee benefit
plan, (ii) a corporation directly or indirectly owned
by stockholders of the Company in substantially the
same proportions as their
4
<PAGE> 5
ownership of the Company, or (iii) a corporation in
which the executive has a substantial interest) owns
beneficially 20 percent or more of the stock of GATX
Corporation;
(b) Any offer by a person, other than those noted in
(a)(i)-(iii) above, where the offeror owns 20% or
more the Company's stock or three business days
before the offer terminates could beneficially own
50% or more of the Company's Common Stock;
(c) Shareholder approval of any merger in which the
Company's voting stock does not represent 70% of the
surviving corporation's voting stock or at least 50%
of the Company's directors are not directors of the
surviving corporation; and
(d) A change in the majority of the Board of Directors of
the Company such that for any period of two
consecutive years new board members are not elected
or nominated by at least a two-thirds vote of
directors who were either directors at the beginning
of the period or whose election or nomination for
election was so approved.
10. Participant's Rights Unsecured
No fund is to be created to meet payment obligations under
this Plan, and the right of a Participant to receive any
unpaid portion of any amounts credited to the Participant's
Phantom Stock or Deferred Fee Account shall be an unsecured
claim against the general assets of the Company.
11. Non-assignability
The right of a Participant to receive any unpaid portion of
any amounts credited to his or her Phantom Stock or Deferred
Fee Account shall not be assigned, transferred, pledged or
encumbered or be subject in any manner to alienation or
anticipation, except that a Participant may designate, on
forms provided by the Company, a beneficiary to receive unpaid
installments in the event of such Participant's death.
12. Administration
The administrator of this Plan shall be the Vice President of
Compensation and Benefits of the Company, who shall have
authority to adopt rules and regulations for carrying out the
Plan and to interpret and implement the provision hereof.
13. Amendment and Termination
5
<PAGE> 6
This Plan may at any time be amended, modified or terminated
by the Board. No amendment, modification or termination shall,
without the consent of a Participant, adversely affect such
Participant's rights with respect to amounts credited to the
Participant's Account.
14. Effective Date
The Plan, as amended, will become effective on the day, month
and year first above written, and will continue in effect
until terminated by the Board.
GATX Corporation
By:
--------------------------------
Vice President - Human Resources
6
<PAGE> 1
EXHIBIT 11A
GATX CORPORATION AND SUBSIDIARIES
COMPUTATION OF BASIC NET INCOME (LOSS) PER SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ---------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Average number of shares of
common stock outstanding 49.2 45.1 40.4 40.0 39.7
Net income (loss) $131.9 $(50.9) $102.7 $100.8 $91.5
Deduct - Dividends paid and
accrued on preferred stock .1 6.7 13.2 13.2 13.3
------------------- ---------------- --------------- --------------- -------------
Net income (loss), as adjusted $131.8 $(57.6) $ 89.5 $ 87.6 $78.2
=================== ================ =============== =============== =============
Basic net income (loss) per share $ 2.68 $(1.28) $ 2.22 $ 2.19 $1.97
=================== ================ =============== =============== =============
</TABLE>
Note: Prior year amounts have been restated to reflect Statement of Financial
Accounting Standards No. 128, Earnings Per Share, and the 2-for-1 stock
split effected in June 1998.
22
<PAGE> 1
EXHIBIT 11B
GATX CORPORATION AND SUBSIDIARIES
COMPUTATION OF DILUTED NET INCOME (LOSS) PER SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Average number of shares used to compute basic
net income (loss) per share 49.2 45.1 40.4 40.0 39.7
Shares issuable upon assumed exercise of stock
options, reduced by the number of shares which
could have been purchased with the proceeds from
exercise of such options 1.1 * .6 .7 .6
Common stock issuable upon assumed conversion
of preferred stock .1 * 7.9 8.0 8.0
----------- ---------- ---------- ---------- -----------
Total 50.4 45.1 48.9 48.7 48.3
=========== ========== ========== ========== ===========
Net income (loss) as adjusted per basic computation $131.8 $(57.6) $ 89.5 $ 87.6 $ 78.2
Add - Dividends paid on preferred stock .1 * 13.2 13.2 13.3
----------- ---------- ---------- ---------- -----------
Net income (loss), as adjusted $131.9 $(57.6) $102.7 $100.8 $ 91.5
=========== ========== ========== ========== ===========
Diluted net income (loss) per share $ 2.62 $(1.28) $ 2.10 $ 2.07 $ 1.89
=========== ========== ========== ========== ===========
<CAPTION>
* Exercise of options and conversion of preferred stock is excluded from
computation of diluted loss per share because of antidilutive effects.
<S> <C>
Additional diluted computation (1)
Average number of shares used to compute basic
net income (loss) per share 45.1
Common stock issuable upon assumed conversion
of preferred stock, and stock option exercises 4.6
-----------
49.7
===========
Net (loss) as adjusted per basic computation $ (57.6)
Add - Dividends paid on preferred stock 6.7
-----------
$ (50.9)
===========
Diluted net (loss) per share $ (1.03)
===========
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an antidilutive result.
Note: Prior year amounts have been restated to reflect Statement of Financial
Accounting Standards No. 128, Earnings Per Share, and the 2-for-1 stock
split effected in June 1998.
23
<PAGE> 1
EXHIBIT 12
GATX CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(IN MILLIONS EXCEPT FOR RATIOS)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Earnings available for fixed charges:
Net income (loss) $131.9 $ (50.9) $ 102.7 $ 100.8 $ 91.5
Add:
Income taxes (benefit) 74.3 (5.5) 54.4 47.6 48.8
Share of affiliates' earnings, net of
distributions received 13.5 40.7 8.0 6.5 3.7
Interest on indebtedness and amortization of
debt discount and expense 234.9 222.4 202.8 170.1 148.2
Amortization of capitalized interest 1.4 1.4 3.7 1.1 1.1
Portion of rents representative of interest
factor (deemed to be one-third) 66.3 62.2 56.7 43.9 37.9
------------- ----------- ----------- ------------ -------------
Total earnings available for fixed charges $522.3 $270.3 $428.3 $370.0 $331.2
============= =========== =========== ============ =============
Preferred stock dividends $ .1 $ 6.6 $ 13.2 $ 13.2 $ 13.3
Ratio to convert preferred dividends to
pretax basis (A) 184% 107% 173% 169% 171%
------------- ----------- ----------- ------------ -------------
Preferred dividends on pretax basis .2 7.1 22.8 22.3 22.7
Fixed charges:
Interest on indebtedness and amortization of
debt discount and expense 234.9 222.4 202.8 170.1 148.2
Capitalized interest 3.3 2.5 6.8 6.2 3.0
Portion of rents representative of interest
factor (deemed to be one-third) 66.3 62.2 56.7 43.9 37.9
------------- ----------- ----------- ------------ -------------
Combined fixed charges and preferred
stock dividends $304.7 $294.2 $289.1 $242.5 $211.8
============= =========== =========== ============ =============
Ratio of earnings to combined fixed charges and
preferred stock dividends (B) 1.71x .92x (C) 1.48x 1.53x 1.56x
</TABLE>
(A) To adjust preferred dividends to a pretax basis, income (loss) before
income taxes and share of affiliates' earnings is divided by income (loss)
before share of affiliates' earnings.
(B) The ratios of earnings to combined fixed charges and preferred stock
dividends represent the number of times "fixed charges and preferred stock
dividends" were covered by "earnings." "Fixed charges and preferred stock
dividends" consist of interest on outstanding debt and amortization of debt
discount and expense, adjusted for capitalized interest, one-third (the
proportion deemed representative of the interest factor) of rentals, and
dividends on preferred stock adjusted to a pretax basis. "Earnings" consist
of consolidated net income (loss) before income taxes and fixed charges,
less share of affiliates' earnings, net of distributions received.
(C) In 1997, net loss included restructuring charges of $162.8 million.
Excluding the charges, the "ratio of earnings to combined fixed charges and
preferred stock dividends" was 1.66x.
24
<PAGE> 1
EXHIBIT 13
GATX Corporation and Subisidiaries
GATX REVIEW OF FINANCIAL OPERATIONS
<TABLE>
<S> <C>
REPORTS OF GATX MANAGEMENT AND OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS....................................................................... 28
MANAGEMENT'S DISCUSSION AND ANALYSIS: 1998 COMPARED TO 1997
(CONTINUED ON PAGES 35, 37 AND 39)......................................................... 29
FINANCIAL DATA OF BUSINESS SEGMENTS........................................................ 32
CONSOLIDATED STATEMENTS OF OPERATIONS...................................................... 34
CONSOLIDATED BALANCE SHEETS................................................................ 36
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................................... 38
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)............................................................ 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................................. 44
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
AND COMMON STOCK INFORMATION............................................................... 61
SELECTED CONSOLIDATED FINANCIAL DATA....................................................... 62
MANAGEMENT'S DISCUSSION AND ANALYSIS: 1997 COMPARED TO 1996................................ 64
- --------------------------------------------------------------------------------------------------
</TABLE>
BUSINESS SEGMENTS The following summary describes GATX's current business
segments:
RAILCAR LEASING AND MANAGEMENT represents General American Transportation
Corporation and its foreign subsidiaries and affiliates (General American),
which lease and manage tank cars and other specialized railcars.
FINANCIAL SERVICES represents GATX Capital Corporation and its subsidiaries and
affiliates (Capital), which arrange and service the financing of equipment and
other capital assets on a worldwide basis.
TERMINALS AND PIPELINES represents GATX Terminals Corporation and its domestic
and foreign subsidiaries and affiliates (Terminals), which own and operate tank
storage terminals, pipelines and related facilities.
LOGISTICS AND WAREHOUSING represents GATX Logistics, Inc. (Logistics), which
provides distribution and logistics support services and warehousing facilities
throughout North America.
GREAT LAKES SHIPPING represents American Steamship Company (ASC), which operates
self-unloading vessels on the Great Lakes.
27
<PAGE> 2
GATX Corporation and Subisidiaries
REPORT OF GATX MANAGEMENT
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO OUR SHAREHOLDERS: The management of GATX Corporation has prepared the
accompanying consolidated financial statements and related information included
in this 1998 Annual Report to Shareholders and has the primary responsibility
for the integrity of this information. The financial statements have been
prepared in conformity with generally accepted accounting principles and
necessarily include certain amounts which are based on estimates and informed
judgments of management.
The financial statements have been audited by the company's independent
auditors, whose report thereon appears on this page. Their role is to form an
independent opinion as to the fairness with which such statements present the
financial position of the company and the results of its operations.
GATX maintains a system of internal accounting controls which is designed to
provide reasonable assurance as to the reliability of its financial records and
the protection of its shareholders' assets. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal control should
not exceed the related benefits. Management believes the company's system
provides this appropriate balance in all material respects.
GATX's system of internal controls is further augmented by an audit committee
composed of directors who are not officers or employees of GATX, which meets
regularly throughout the year with management, the independent auditors and the
internal auditors; an internal audit program that includes prompt, responsive
action by management; and the annual audit of the company's financial statements
by independent auditors.
<TABLE>
<S> <C> <C>
/s/ RONALD H. ZECH /s/ DAVID M. EDWARDS /s/ RALPH L. O'HARA
Chairman, President and Senior Vice President Controller and
Chief Executive Officer and Chief Financial Officer Chief Accounting Officer
- -------------------------------------------------------------------------------------
</TABLE>
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF GATX CORPORATION: We have audited
the accompanying consolidated balance sheets of GATX Corporation and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in shareholders' equity, comprehensive income
(loss), and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of GATX Corporation
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Chicago, Illinois /s/ ERNST & YOUNG LLP
January 26, 1999 ERNST & YOUNG LLP
28
<PAGE> 3
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
1998 COMPARED TO 1997
GATX reported record net income of $132 million or $2.62 per share, on a diluted
basis, for the year ended December 31, 1998 compared to a net loss of $51
million or $1.28 per share for 1997. Basic earnings per share was $2.68 compared
to a per share loss of $1.28 for 1997.
During 1997, strategic decisions resulted in an after-tax restructuring charge
of $163 million. Before the effects of the restructuring charge, operating
income was $112 million with earnings per share on a diluted and basic basis of
$2.25 and $2.34, respectively. The increase in 1998 operating income was
principally due to record earnings at General American and Capital, improved
conditions in the markets served by Terminals, and the benefit of last year's
restructuring. Return on equity was 19.0% in 1998, up from 14.0% in 1997 prior
to the effects of the restructuring charge.
The comparative performance for 1997 versus 1996 is discussed in the prior
year's management discussion on pages 64-66 of this report.
RAILCAR LEASING AND MANAGEMENT'S gross income of $515 million increased 8% from
1997, with an average of over 5,000 more railcars on lease throughout North
America. Average rental rates in 1998 were also slightly higher. At year end
1998, there were 81,600 railcars on lease, representing 95% utilization of the
total North American fleet of 85,700 cars. Utilization at the end of 1997 was
almost 96%, with 77,700 cars on lease.
General American's share of its two European affiliates' earnings was $2.5
million in 1998 compared to $.9 million last year. The increase is primarily due
to holding one of the affiliates for an entire year as General American's
interest was acquired in the fourth quarter of 1997.
Based on the revenues generated by the growing fleet, net income increased 7% to
a record $67.1 million. Repair costs increased $8 million to support a larger
fleet, but as a percentage of revenue were consistent with 1997. Selling,
general, and administrative expense increased, primarily to support a major
information systems initiative. Though the fleet grew substantially,
depreciation and interest did not change appreciably from last year, primarily
because of General American's continued use of sale-leaseback financing. In
1998, $208 million of railcars were sold and leased back, and the resultant
asset ownership costs are included in operating lease expense.
FINANCIAL SERVICES GATX Capital's gross income of $597 million increased $13
million from 1997. Higher lease, interest, and asset remarketing income were
offset in part by a significant decrease in technology equipment sales. Lease
income was $22 million higher predominantly due to the growing leasing
technology portfolio. Interest income increased $11 million, as market
opportunities resulted in Capital extending $162 million in new loans in 1998.
Asset remarketing income of $92 million exceeded last year's record $83 million.
Asset remarketing, which does not fall evenly from period to period, includes
both gains from the sale of assets out of Capital's own portfolio as well as
residual sharing fees from the sale of managed assets. The largest gain in 1998
resulted from the sale of rail assets. While technology investing and leasing
continued to grow, value-added reselling (VAR) sales of technology equipment in
the U.S. and Europe experienced difficulties; sales of technology equipment
decreased $31 million from last year.
During 1998, Capital continued to emphasize its strategy of joining with
partners to finance and manage assets. Capital's share of earnings in such joint
ventures was $27.9 million in 1998, a 64% increase over last year. Most of the
increase was attributable to the joint venture formed with Pitney
29
<PAGE> 4
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
1998 COMPARED TO 1997 (CONTINUED)
Bowes at the end of 1997. A number of new joint ventures were formed in 1998,
including GATX Flightlease Ltd. (aircraft), Rolls-Royce and Partners Finance
Ltd. (aircraft engines), and GATX Telecom Investors (telecommunications).
Capital also made incremental investments in several existing joint ventures to
acquire additional aircraft.
Net income for 1998 was a record $59.3 million, exceeding last year by 11%. The
record earnings were achieved despite absorbing a $6 million goodwill write-down
related to the VAR sector due to the market difficulties facing the business.
Capital's allowance for possible losses increased by $7 million to $129 million,
representing 6.3% of net investments, up from 5.8% at the end of 1997. The loss
provision for 1998 was consistent with last year.
Compared to the end of last year, the asset mix of Capital's $2.4 billion
portfolio at the end of 1998 showed a higher percentage of technology leasing
equipment and a lower percentage of rail assets. Over $300 million was added to
the technology leasing portfolio and approximately $170 million of rail assets
were sold.
TERMINALS AND PIPELINES Terminals' gross income of $290 million decreased $2
million from 1997, primarily due to the sale of the Norco, Louisiana site in
1997. For both petroleum and chemical customers, demand at Terminals' U.S.
facilities was stronger in 1998 resulting in improved revenues. Petroleum
pricing in the futures market provided incentive to store product, while a
favorable U.S. economy kept demand for chemical storage at a relatively high
level.
During 1997, Terminals identified certain non-strategic locations and recorded a
$123.8 million after-tax charge for the sale or closure of those and other
impaired facilities. Three domestic and six terminals in the United Kingdom have
been sold as of early 1999. One other domestic and a United Kingdom terminal are
slated for sale or closure in 1999. On a continuing site basis, throughput and
capacity utilization were 587 million barrels and 94% in 1998 compared to 560
million barrels and 93% in 1997.
Terminals' joint ventures, which primarily serve the European and Asian markets,
contributed $13 million in earnings in 1998. Results in 1998 were hampered by
unfavorable foreign exchange of approximately $1 million compared to 1997, but
overall were comparable to last year. In Asia, the financial crisis and economic
downturn appear to have bottomed out, though difficulties may continue to some
degree for at least the first half of 1999.
Net income of $19.5 million for 1998 increased significantly from last year's
operating earnings of $8.1 million (before the $123.8 million after-tax
restructuring charge), based primarily on improving market conditions and
benefits from the restructuring. Selling, general, and administrative costs were
essentially constant with the year ago period. Proceeds from the sale of Norco
and other assets were used to pay down debt, and interest expense accordingly
decreased $4 million from 1997. Depreciation expense was almost $14 million
lower, in large part due to the asset write-downs taken as part of the 1997
restructuring.
30
<PAGE> 5
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
1998 COMPARED TO 1997 (CONTINUED)
LOGISTICS AND WAREHOUSING Logistics' gross income of $273 million increased 6%
due to the addition of major customers and increased business with existing
customers. Lost customers and slower production periods by certain customers
partially offset this increase. Total warehouse capacity was 23 million square
feet and 21 million square feet in 1998 and 1997, respectively.
Space utilization of 95% in 1998 was comparable to the prior year.
Logistics' net income was $1.0 million in 1998 compared to a net loss in 1997 of
$37.4 million, which included the effects of a $39.0 million after-tax charge
for the write-down of goodwill. Logistics' income decreased $.6 million in 1998
from 1997 results before the special charge, reflecting a $3 million receivable
writeoff from a customer that ceased operations, customer turnover, and lower
volume with certain customers. Logistics' 1998 results reflect lower selling,
general and administrative costs and lower goodwill amortization resulting from
the 1997 write-down.
GREAT LAKES SHIPPING Gross income in 1998 was $87 million, a 5% decrease from
last year largely due to a 1997 gain related to the remarketing of a third party
vessel and less tonnage carried in the current year. Tonnage carried in 1998 was
25.3 million tons, 4% lower than the 26.4 million tons carried in 1997, due to
the decline in the domestic steel industry in the latter part of the year. Lower
domestic steel production caused by the high level of imported steel reduced the
demand for iron ore transportation. Total tonnage of coal transported also
decreased as unseasonably warm weather caused inventory levels for large
domestic utilities to remain high. Revenue per ton was comparable with the prior
year.
Net income was $7.2 million in 1998 compared to $7.9 million 1997, which
included a $1.3 million remarketing gain. Excluding the remarketing gain, net
income in 1998 increased 9% despite the lower tonnage. The increase is
attributable to favorable weather conditions, operating efficiencies and higher
vessel utilization, partially offset by business development costs. Contribution
margin per ton was 10% greater than the prior year due to operating
efficiencies.
The environment on the Great Lakes remained competitive, with the demand for
vessel capacity stable in 1998. ASC carried an estimated 22% of the total U.S.
flag Great Lakes tonnage, similar to 1997. Total U.S. flag tonnage was 117
million tons in 1998 compared to 118 million tons in 1997. Iron ore cargoes
represented 42% of ASC's tonnage versus 43% in 1997. Coal cargoes represented
25% of ASC's tonnage, up from 24% last year. It is anticipated that the Great
Lakes environment will be negatively impacted in 1999 by the crisis resulting
from the sale of low-cost foreign steel in domestic markets and consequent
excess vessel capacity on the Great Lakes.
CORPORATE AND OTHER Corporate and Other net expense of $20.7 million was
comparable to the prior year. A decrease in interest expense was offset by an
increase in selling, general and administrative expenses, including the costs to
develop the Liquid Logistics initiative.
31
<PAGE> 6
GATX Corporation and Subsidiaries
FINANCIAL DATA OF BUSINESS SEGMENTS
GATX provides services to a variety of markets through five principal business
segments. The financial data presented on this and the following page conform to
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information, and depict the profitability,
financial position, and cash flow of each of GATX's business segments.
Segment profitability is presented to reflect operating results inclusive of
allocated support expenses from the parent company and interest costs based upon
the debt levels shown below. Certain amounts have been reclassified (as compared
to prior reported GATX segments) to conform with management's assessment of
results for each operation. Most notably, the financing effects considered
non-operational to the Railcar Leasing and Management segment have been
reclassified to the Corporate and Other segment. As a result of eliminating the
non-operating financial components, management is able to assess performance
using better return measures, such as return on equity, both across segments and
over time. Based on a targeted capital structure for Railcar Leasing and
Management, the return on equity trend increased from 20.4% in 1996 to 23.3% in
1998. In certain cases, return on equity is labeled n/m (not meaningful) on the
table to reflect returns that are immaterial, negative, or distorted as a result
of the 1997 restructuring charge.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RAILCAR TERMINALS LOGISTICS
LEASING AND FINANCIAL AND AND GREAT LAKES CORPORATE
IN MILLIONS MANAGEMENT SERVICES PIPELINES WAREHOUSING SHIPPING AND OTHER INTERSEGMENT TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
PROFITABILITY
Gross income (expense) $ 514.5 $ 597.1 $ 290.4 $ 273.4 $ 87.2 $ 5.2 $ (4.7) $1,763.1
Interest expense (52.9) (114.6) (53.6) (.6) (6.8) (8.0) 1.6 (234.9)
Depreciation and amortization (97.3) (110.8) (41.0) (10.0) (6.4) (1.2) (.8) (267.5)
Income (loss) before taxes and
share of affiliates' earnings 105.8 64.0 12.1 3.0 11.3 (31.3) (2.3) 162.6
Share of affiliates' earnings 2.5 27.9 13.3 (.1) -- -- -- 43.6
(loss)
Net income (loss) 67.1 59.3 19.5 1.0 7.2 (20.7) (1.5) 131.9
Return on equity (A) 23.3% 23.1% n/m 1.2% 21.1% n/m n/m 19.0%
FINANCIAL POSITION
Identifiable assets 1,539.9 2,207.2 958.4 144.0 169.1 21.6 (100.9) 4,939.3
Debt 710.4 1,620.9 615.2 7.0 96.5 75.5 (3.9) 3,121.6
Equity 298.3 272.1 117.8 94.7 32.5 (80.2) (2.3) 732.9
ITEMS AFFECTING CASH FLOW
Net cash provided by (used in)
operating activities 166.1 78.8 84.5 13.8 17.7 (21.8) -- 339.1
Portfolio proceeds -- 863.5 -- -- -- -- (6.4) 857.1
- -----------------------------------------------------------------------------------------------------------------------------------
Total cash provided (used) 166.1 942.3 84.5 13.8 17.7 (21.8) (6.4) 1,196.2
Capital additions and
portfolio investments 384.8 853.0 70.9 7.8 4.8 1.1 (7.7) 1,314.7
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Based on average equity for the year.
32
<PAGE> 7
GATX Corporation and Subsidiaries
FINANCIAL DATA OF BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
RAILCAR TERMINALS LOGISTICS
LEASING AND FINANCIAL AND AND GREAT LAKES CORPORATE
IN MILLIONS MANAGEMENT SERVICES PIPELINES WAREHOUSING SHIPPING AND OTHER INTERSEGMENT TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
PROFITABILITY
Gross income (expense) $ 476.9 $ 584.4 $ 292.8 $ 257.1 $ 91.4 $ .6 $ (1.3) $1,701.9
Interest expense (51.0) (96.8) (57.3) (.2) (7.1) (11.6) 1.6 (222.4)
Depreciation and amortization (98.0) (81.7) (54.7) (10.5) (6.4) (1.0) -- (252.3)
Income (loss) before taxes,
restructuring, and share
of affiliates' earnings 98.8 62.3 (7.0) 4.6 12.3 (32.2) (1.3) 137.5
Share of affiliates'
earnings (loss) .9 17.0 13.1 (.1) -- -- -- 30.9
Operating income (loss)
before restructuring (B) 62.7 53.6 8.1 1.6 7.9 (21.3) (.7) 111.9
Net income (loss) 62.7 53.6 (115.7) (37.4) 7.9 (21.3) (.7) (50.9)
Return on equity (A) 22.1% 23.3% n/m n/m 21.9% n/m n/m (7.1)
FINANCIAL POSITION
Identifiable assets 1,504.5 2,275.8 937.1 112.1 177.2 26.9 (85.8) 4,947.8
Debt 693.8 1,697.2 626.0 1.8 101.7 91.4 -- 3,211.9
Equity 278.8 241.9 104.5 78.1 35.8 (82.9) (.8) 655.4
ITEMS AFFECTING CASH FLOW
Net cash provided by (used in)
operating activities 158.3 57.4 69.2 12.2 19.2 (24.9) -- 291.4
Portfolio proceeds -- 458.7 -- -- -- -- -- 458.7
- --------------------------------------------------------------------------------------------------------------------------------
Total cash provided (used) 158.3 516.1 69.2 12.2 19.2 (24.9) -- 750.1
Capital additions and
portfolio investments 336.9 866.3 68.0 4.2 .2 -- -- 1,275.6
- --------------------------------------------------------------------------------------------------------------------------------
1996
PROFITABILITY
Gross income (expense) $ 427.9 $ 337.3 $ 297.6 $ 267.5 $ 85.2 $ (.8) $ (.3) $1,414.4
Interest expense (45.0) (86.1) (52.9) (.3) (7.5) (12.0) 1.0 (202.8)
Depreciation and amortization (86.8) (45.3) (51.9) (11.1) (6.3) (1.0) -- (202.4)
Income (loss) before taxes and
share of affiliates' earnings 86.8 56.1 3.6 3.8 8.3 (29.7) (.2) 128.7
Share of affiliates' earnings 2.9 13.6 11.9 -- -- -- -- 28.4
Net income (loss) 56.6 45.9 13.0 .9 5.4 (19.0) (.1) 102.7
Return on equity (A) 20.4% 22.4% 5.3% .7% 14.5% n/m n/m 13.8%
FINANCIAL POSITION
Identifiable assets 1,452.2 1,808.9 1,195.7 164.7 179.6 33.0 (83.9) 4,750.2
Debt 631.3 1,293.0 724.0 1.9 108.0 149.7 -- 2,907.9
Equity 288.2 218.7 240.7 132.5 36.4 (141.5) (.1) 774.9
ITEMS AFFECTING CASH FLOW
Net cash provided by (used in)
operating activities 161.6 102.2 54.4 17.2 7.1 (45.0) -- 297.5
Portfolio proceeds -- 354.8 -- -- -- -- -- 354.8
- --------------------------------------------------------------------------------------------------------------------------------
Total cash provided (used) 161.6 457.0 54.4 17.2 7.1 (45.0) -- 652.3
Capital additions and
portfolio investments 386.8 659.3 129.5 6.6 .8 1.8 -- 1,184.8
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Based on average equity for the year. In 1997, consolidated return on
equity, based on operating income, was 14.0%.
(B) Pretax income excludes a $224.8 million charge for restructuring with
$185.8 million related to Terminals and Pipelines and $39.0 million
pertaining to Logistics and Warehousing. The after-tax impacts were $162.8
million, $123.8 million, and $39.0 million, respectively.
33
<PAGE> 8
GATX Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE DATA/YEAR ENDED DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INCOME $ 1,763.1 $ 1,701.9 $ 1,414.4
COSTS AND EXPENSES
Operating expenses 838.0 840.3 689.2
Interest 234.9 222.4 202.8
Provision for depreciation and amortization 267.5 252.3 202.4
Provision for possible losses 14.7 11.1 12.5
Selling, general and administrative 245.4 238.3 178.8
Provision for restructuring -- 224.8 --
- --------------------------------------------------------------------------------------------------------
1,600.5 1,789.2 1,285.7
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND SHARE
OF AFFILIATES' EARNINGS 162.6 (87.3) 128.7
INCOME TAXES (BENEFIT) 74.3 (5.5) 54.4
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE SHARE OF AFFILIATES' EARNINGS 88.3 (81.8) 74.3
SHARE OF AFFILIATES' EARNINGS 43.6 30.9 28.4
- --------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 131.9 $ (50.9) $ 102.7
- --------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic:
Net Income (Loss) $ 2.68 $ (1.28) $ 2.22
Average Number of Common Shares (in thousands) 49,178 45,084 40,379
Diluted:
Net Income (Loss) 2.62 (1.28) 2.10
Average Number of Common Shares and Common
Share Equivalents (in thousands) 50,426 45,084 48,924
Dividends paid:
Common 1.00 .92 .86
$3.875 Cumulative Preferred -- 1.9375 3.875
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE> 9
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
1998 COMPARED TO 1997
OVERVIEW: The comparison of 1998 to 1997 results is heavily influenced by the
$163 million after-tax restructuring charge taken last year.
GROSS INCOME of $1.8 billion in 1998 increased $61 million or 4% over last year.
General American's revenues increased $38 million, with an average of over 5,000
more cars on lease in North America than in 1997. Logistics added several new
large customers in 1998 and expanded business with key existing customers,
resulting in revenue growth of $16 million. GATX Capital's gross income
increased $13 million, with higher lease, interest, and asset remarketing income
offset in part by a $31 million decrease in VAR sales. ASC's and Terminals'
gross income decreased $4 million and $2 million, respectively. ASC carried less
tonnage and 1997 revenues included a remarketing gain. Terminals' decrease
included the effect of selling its Norco terminal in 1997.
OPERATING EXPENSES of $838 million were $2 million lower than last year.
Consistent with the reduction in GATX Capital's VAR sales, the cost of sales
decreased $32 million. General American's operating expenses increased by $25
million with $8 million related to repairs supporting the growing railcar fleet
and $14 million due to operating lease expense for the ongoing sale-leaseback of
railcars. Logistics' operating costs increased $16 million. Terminals' operating
expenses were $4 million lower primarily due to selling Norco. ASC carried fewer
tons and benefited from certain operating efficiencies, resulting in a $3
million cost reduction.
INTEREST EXPENSE of $235 million increased almost $13 million. GATX Capital's
average debt balance during 1998 was $261 million higher than the prior year,
resulting in an $18 million increase in interest expense. Terminals' interest
expense was $4 million lower primarily due to using asset sale proceeds to pay
down debt.
DEPRECIATION AND AMORTIZATION EXPENSE was $15 million more than in 1997.
Terminals' depreciation was $14 million lower, in large part due to the asset
write-downs taken as part of the 1997 restructuring. GATX Capital's depreciation
expense was $20 million higher due to the growth in operating lease investments
during 1998. Amortization also was higher, primarily due to a $6 million
write-off of goodwill related to the VAR technology business partially offset by
less amortization at Logistics.
THE PROVISION FOR POSSIBLE LOSSES of $15 million, a $4 million increase over
last year, includes Logistics' $3 million write-off of a receivable from a
customer that ceased operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES in 1998 included expenditures for
employee costs, information systems, and new business development partially
offset by cost control benefits. SG&A as a percentage of gross income was
approximately 14%, comparable with the prior year.
INCOME TAX EXPENSE of $74 million represented an effective tax rate of
approximately 46%, higher than last year's 41% (before restructuring charges).
Certain expenses in 1998, including the goodwill write-down for the VAR
technology business, were not deductible for tax purposes.
SHARE OF AFFILIATES' EARNINGS grew by 41% over 1997. The majority of the
increase was attributable to PBG Capital, a joint venture formed late in 1997
between GATX Capital and Pitney Bowes, and a full year of affiliate earnings
from KVG, a German-based railcar joint venture acquired in 1997.
CONSOLIDATED EARNINGS of $132 million, an increase of $20 million from last year
(before restructuring charges), were driven by record earnings at GATX Capital
and General American, and sharply higher results at Terminals.
35
<PAGE> 10
GATX Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
IN MILLIONS/DECEMBER 31 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 94.5 $ 77.8
RECEIVABLES
Trade accounts 156.2 161.9
Finance leases 676.0 877.0
Secured loans 241.6 180.3
Less-Allowance for possible losses (135.9) (128.5)
- ---------------------------------------------------------------------------
937.9 1,090.7
OPERATING LEASE ASSETS AND FACILITIES
Railcars and service facilities 2,567.1 2,501.7
Tank storage terminals and pipelines 1,168.2 1,128.9
Great Lakes vessels 204.2 199.4
Operating lease investments and other 770.2 704.4
- ---------------------------------------------------------------------------
4,709.7 4,534.4
Less-Allowance for depreciation (1,919.6) (1,823.9)
- ---------------------------------------------------------------------------
2,790.1 2,710.5
INVESTMENTS IN AFFILIATED COMPANIES 715.3 707.4
OTHER ASSETS 401.5 361.4
- ---------------------------------------------------------------------------
$4,939.3 $4,947.8
- ---------------------------------------------------------------------------
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 353.0 $ 354.7
ACCRUED EXPENSES 54.1 58.0
DEBT
Short-term 299.9 370.2
Long-term:
Recourse 2,171.3 2,221.4
Nonrecourse 451.9 408.2
Capital lease obligations 198.5 212.1
- ---------------------------------------------------------------------------
3,121.6 3,211.9
DEFERRED INCOME TAXES 325.1 297.6
OTHER DEFERRED ITEMS 352.6 370.2
- ----------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFERRED ITEMS 4,206.4 4,292.4
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock 34.3 34.1
Additional capital 331.6 322.6
Reinvested earnings 446.0 363.4
Accumulated other comprehensive loss (32.2) (17.9)
- ----------------------------------------------------------------------------
779.7 702.2
Less-Cost of common shares in treasury (46.8) (46.8)
- ---------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 732.9 655.4
- ---------------------------------------------------------------------------
$4,939.3 $4,947.8
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE> 11
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF BALANCE SHEETS
1998 COMPARED TO 1997
OVERVIEW: Total assets were $4.9 billion and approximated the balance at the end
of 1997. While there were record portfolio investments and capital additions
during 1998, these were more than offset by significant asset reductions,
including $268 million of depreciation and amortization, the sale-leaseback of
$231 million of railcars, portfolio proceeds from repayments of portfolio loans
and leases, and from asset remarketing. In addition to the $4.9 billion of
assets on the balance sheet, GATX utilizes over $1 billion of assets, such as
railcars, aircraft, and warehouses, that are financed with operating leases and
therefore are not included on the balance sheet.
TOTAL RECEIVABLES, including finance leases and secured loans, decreased $145
million mostly due to activity at GATX Capital. Finance leases decreased $201
million primarily due to the remarketing of rail assets. Several new significant
investment opportunities resulted in secured loans increasing by $61 million.
OPERATING LEASE ASSETS AND FACILITIES of $2.8 billion increased by only $80
million, despite $1.3 billion of portfolio investments and capital additions
made in 1998. Substantially offsetting the additions were depreciation, the
sale-leaseback of railcars at General American and GATX Capital, and asset
remarketing.
INVESTMENTS IN AFFILIATED COMPANIES of $715 million increased $8 million. Though
$147 million was invested in GATX's joint ventures in 1998, and a record $44
million of equity income was recognized, these additions were largely offset by
cash distributions.
OTHER ASSETS of $402 million increased $41 million since the end of last year,
with the largest part of the increase due to progress payments for aircraft.
TOTAL DEBT of $3.1 billion decreased $90 million since the end of 1997.
Short-term debt and other recourse debt collectively decreased $134 million.
GATX's use of nonrecourse debt continued to be emphasized, with that component
of debt increasing $44 million. GATX's cash needs for 1998 were generally
satisfied with internally-generated cash flow from operations, portfolio
proceeds, and sale-leaseback proceeds.
37
<PAGE> 12
GATX Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
IN MILLIONS/YEAR ENDED DECEMBER 31 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 131.9 $ (50.9) $ 102.7
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Realized gains on remarketing of leased equipment (72.9) (74.1) (40.9)
Provision for restructuring, net of tax -- 162.8 --
Provision for depreciation and amortization 267.5 252.3 202.4
Provision for possible losses 14.7 11.1 12.5
Deferred income taxes 38.8 18.0 25.2
Net change in trade receivables, inventories,
accounts payable and accrued expenses (13.4) 34.9 30.2
Other (27.5) (62.7) (34.6)
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 339.1 291.4 297.5
INVESTING ACTIVITIES
Additions to operating lease assets and facilities (468.5) (362.0) (436.2)
Additions to equipment on lease, net of
nonrecourse financing (501.6) (536.4) (376.3)
Secured loans extended (161.6) (35.1) (117.1)
Investments in affiliated companies (147.2) (306.1) (92.8)
Other investments and progress payments (35.8) (36.0) (162.4)
- -----------------------------------------------------------------------------------------
Capital additions and portfolio investments (1,314.7) (1,275.6) (1,184.8)
Portfolio proceeds:
From remarketing of leased equipment 242.0 218.5 100.7
From return of investment 615.1 240.2 254.1
- -----------------------------------------------------------------------------------------
Total portfolio proceeds 857.1 458.7 354.8
Proceeds from other asset sales 261.6 226.9 250.3
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (196.0) (590.0) (579.7)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 360.1 569.9 757.3
Repayment of long-term debt (361.6) (395.2) (283.3)
Net (decrease) increase in short-term debt (69.2) 207.8 (121.1)
Repayment of capital lease obligations (15.4) (15.3) (14.4)
Issuance of common stock under employee
benefit programs and other 9.0 12.4 3.1
Cash dividends (49.3) (49.4) (48.0)
- ------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (126.4) 330.2 293.6
- ------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 16.7 $ 31.6 $ 11.4
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE> 13
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CASH FLOWS
1998 COMPARED TO 1997
GATX generates significant cash from its operating activities and proceeds from
its investment portfolio which are used to service debt, pay dividends, and fund
capital additions and portfolio investments. Most of the capital requirements
are considered discretionary and represent additions to the railcar fleet,
capital equipment investment portfolio, joint ventures, and terminal and
pipeline facilities. As a result, the level of capital spending and investments
can be adjusted as conditions in the economy or GATX's businesses warrant.
CASH PROVIDED BY OPERATING ACTIVITIES generated $339 million of cash flow in
1998, a $48 million increase from 1997. GATX Capital, Terminals and General
American all reported higher cash flow and Logistics' and ASC's cash flows were
consistent with the year ago period. To the extent GATX Capital reports
increased gains on asset remarketing or equity in earnings of affiliates, cash
flows from operations will decrease, as Capital's remarketing proceeds and cash
distributions from affiliates are included in portfolio proceeds.
CAPITAL ADDITIONS AND PORTFOLIO INVESTMENTS totaled a record $1.3 billion, an
increase of $39 million from 1997. General American's capital additions in 1998
were $385 million, including $366 million for the addition of railcars. In 1997,
General American's additions were $337 million including $275 million for fleet
additions and an investment in a 40% interest in KVG, a German railcar company.
Terminals' expenditures were comparable to the prior year.
GATX Capital's portfolio investments of $853 million were slightly lower than
last year's record of $866 million, representing strong market opportunities in
the technology leasing and aircraft sectors. Capital's technology leasing
operation funded $307 million, a 36% increase over 1997's volume. Late in 1998,
Capital acquired a 50% interest in Rolls-Royce and Partners Finance Ltd.,
a lessor of aircraft engines. Including the interest in the Rolls-Royce
partnership, Capital invested $128 million in its aircraft joint ventures in
1998. Capital extended $162 million of loans to various entities in 1998, which
are collateralized by vessels and aircraft. In 1997, GATX Capital acquired a
portfolio of leases from Pitney Bowes for $368 million.
PORTFOLIO PROCEEDS of $857 million increased 87% from 1997 reflecting
exceptional activity. Proceeds from the remarketing of leased equipment,
primarily rail and aircraft assets, included both the return of principal and
the gains on the transactions. Proceeds from the return of investment were $615
million and $240 million for 1998 and 1997, respectively. Included in the
portfolio proceeds amount are loan principal receipts and distributions from
joint venture investments.
PROCEEDS FROM OTHER ASSET SALES of $262 million in 1998 included the receipt of
$231 million from the sale-leaseback of railcars at General American and
Capital. Asset sale activity included General American's sale-leaseback of 3,380
railcars, scrapping of 2,100 cars, and Terminals' sale of its Vancouver
terminal. In 1997 General American sold and leased back $167 million of railcars
and Terminals sold its Norco, Louisiana facility.
CASH USED IN FINANCING ACTIVITIES was $126 million compared to cash provided of
$330 million in 1997. Because of 1998's substantial portfolio proceeds and cash
flow from operations, long-term debt remained constant and $69 million of
short-term debt was paid down.
Common dividends per share were $1.00 in 1998 compared to $.92 in 1997. In
January 1999, the Board of Directors approved a 10% increase in the quarterly
dividend to $.275 per common share, or $1.10 on an annualized basis. This is the
fourteenth consecutive year GATX has increased its dividend.
39
<PAGE> 14
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CASH FLOWS
1998 COMPARED TO 1997 (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES General American Transportation Corporation
(GATC) and GATX Capital have revolving credit facilities. GATC and GATX Capital
also have commercial paper programs and uncommitted money market lines which
are used to fund operating needs. The GATC revolving credit facility expires in
2003 while GATX Capital's revolving credit facility expires in 2001. Under the
covenants of the commercial paper programs and rating agency guidelines, GATC
and GATX Capital individually must keep unused revolver credit capacity at least
equal to the amount of commercial paper outstanding. At December 31, 1998, GATX
and its subsidiaries had available unused committed lines of credit amounting to
$561.3 million.
GATC has a $650 million shelf registration for pass through trust certificates
and debt securities of which $100 million of notes and $106 million of pass
through certificates have been issued at year end. GATX Capital has a shelf
registration for $532 million of which $370 million has been issued. At year
end, GATX had $702 million of commitments to provide financing to customers or
to acquire assets, $444 million of which is scheduled to fund in 1999.
At December 31, 1998, approximately $346 million of subsidiary net assets were
restricted, limiting the ability of the subsidiaries to transfer assets to GATX
parent in the form of loans, advances or dividends. The majority of net asset
restrictions relate to the revolving credit agreement of GATC and the various
loan agreements of GATX Capital. Such restrictions are not expected to have an
adverse impact on the ability of GATX to meet its cash obligations.
RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS GATX, like most other
companies, is exposed to certain market risks, including changes in interest
rates and currency exchange rates. To manage these risks, GATX, pursuant to
preestablished and preauthorized policies, enters into certain derivative
transactions, predominantly interest rate swaps. These interest rate swaps and
other derivative instruments are entered into for hedging purposes only; GATX
does not hold or issue derivative financial instruments for speculative
purposes.
GATX's interest expense is affected by changes in interest rates as a result of
its use of variable rate debt instruments, including commercial paper and other
floating rate debt. Based on GATX's variable rate debt at December 31, 1998, if
market rates were to increase by 10% of GATX's weighted average floating rate,
after-tax interest expense would increase by approximately $2 million in 1999.
Changes in certain currency exchange rates would affect GATX's reported
earnings. Based on 1998 reported earnings, a uniform and hypothetical 10%
strengthening in the U.S. dollar versus those foreign currencies would decrease
after-tax income in 1999 by approximately $2 million.
The interpretation and analysis of the results from the hypothetical changes to
interest rates and currency exchange rates should not be considered in
isolation; such changes would typically have corresponding offsetting changes.
Offsetting effects are present, for example, to the extent that floating rate
debt is associated with floating rate assets.
40
<PAGE> 15
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
1998 COMPARED TO 1997 (CONTINUED)
ENVIRONMENTAL MATTERS Certain operations of GATX's subsidiaries (collectively
GATX) present potential environmental risks principally through the
transportation or storage of various commodities. Recognizing that some risk to
the environment is intrinsic to its operations, GATX is committed to protecting
the environment as well as complying with applicable environmental protection
laws and regulations. GATX, as well as its competitors, is subject to extensive
regulation under federal, state and local environmental laws which have the
effect of increasing the costs and liabilities associated with the conduct of
its operations. In addition, GATX's foreign operations are subject to
environmental laws in effect in each respective jurisdiction.
GATX's policy is to monitor and actively address environmental concerns in a
responsible manner. GATX has received notices from the U.S. Environmental
Protection Agency (EPA) that it is a potentially responsible party (PRP) for
study and clean-up costs at 13 sites under the requirements of the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(Superfund). Under these Acts and comparable state laws, GATX may be required to
share in the cost to clean-up various contaminated sites identified by the EPA
and other agencies. GATX also has received notice that it is a PRP at one site
to undertake a Natural Resource Damage Assessment. In all instances, GATX is one
of a number of financially responsible PRPs and has been identified as
contributing only a small percentage of the contamination at each of the sites.
Due to various factors such as the required level of remediation or restoration
and participation in clean-up or restoration efforts by others, GATX's total
clean-up costs at these sites cannot be predicted with certainty; however,
GATX's best estimates for remediation and restoration of these sites have been
determined and are included in its environmental reserves.
Future costs of environmental compliance are indeterminable due to unknowns such
as the magnitude of possible contamination, the timing and extent of the
corrective actions that may be required, the determination of the company's
liability in proportion to other responsible parties, and the extent to which
such costs are recoverable from third parties including insurers. Also, GATX may
incur additional costs relating to facilities and sites where past operations
followed practices and procedures that were considered acceptable at the time
but in the future may require investigation and/or remedial work to ensure
adequate protection to the environment under current or future standards. If
future laws and regulations contain more stringent requirements than presently
anticipated, expenditures may be higher than the estimates, forecasts, and
assessments of potential environmental costs provided below. However, these
costs are expected to be at least equal to the current level of expenditures. In
addition, GATX has provided indemnities for environmental issues to the buyers
of three divested companies, and a number of divested terminal facilities for
which GATX believes it has adequate reserves.
GATX's environmental reserve at the end of 1998 was $74 million and reflects
GATX's best estimate of the cost to remediate known environmental conditions.
Additions to the reserve were $14 million in 1998 and $11 million in 1997.
Expenditures charged to the reserve amounted to $12 million and $14 million in
1998 and 1997, respectively.
In 1998, GATX made capital expenditures of $5 million for environmental and
regulatory compliance compared to $13 million in 1997. These projects included
marine vapor recovery systems, discharge prevention compliance, waste water
systems, impervious dikes, tank modifications for emissions control, and tank
car cleaning systems. Environmental projects authorized or planned would require
capital expenditures of approximately $7 million in 1999. GATX anticipates it
will make annual expenditures at approximately the same level over each of the
next three years.
41
<PAGE> 16
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
1998 COMPARED TO 1997 (CONTINUED)
YEAR 2000 READINESS DISCLOSURE GATX continues to address what is commonly
referred to as the Year 2000 problem. GATX has completed the assessment phase of
reviewing its critical information systems for Year 2000 compliance. Efforts are
well underway in both modifying and replacing its in-house developed software as
well as upgrading its vendor-supported software so that its computer systems
will function properly with respect to dates in the year 2000 and thereafter.
Several remediation projects and systems replacements are already in place, and
efforts are continuing on others. Critical projects should be completed by
mid-year 1999. Additionally, other less critical information systems have been
reviewed and corrective action is being taken where indicated.
GATX also is reviewing its operating assets to determine any exposure to
time-sensitive controls which may be embedded in the equipment. These situations
are being assessed on an ongoing basis and replacement or remediation is in
process where there is indicated need.
GATX is inquiring of both customers and vendors where the company's information
systems interface directly with third parties to ensure that the interfaces and
the third party systems are or will be Year 2000 compliant. Where considered
appropriate, the company is working directly with such third parties to test or
remediate such systems. The company also interacts electronically with certain
external entities but has no means of ensuring that they will be Year 2000
ready. Additionally, GATX has been inquiring of key vendors in an effort to
establish the ability of the provider to deliver product or services on a timely
basis in the year 2000.
GATX believes it has an effective program in place to resolve the Year 2000
issue in a timely manner and to minimize the company's exposure. If these steps
were not taken, or are not completed timely, the Year 2000 issue could have a
significant impact on the operations of the company. The project is estimated to
be completed during 1999, which is prior to any anticipated impact on its
operating systems. Based on the progress and results of the Year 2000 project
thus far, GATX believes that the Year 2000 issue should not pose significant
operational problems. However, in the event that the company's efforts have not
addressed all potential systems problems, contingency plans are being developed
to enable critical business operations to continue. The total Year 2000 project
cost is estimated to not exceed $11 million, of which approximately $5 million
has been expensed through 1998. These costs have not and are not expected to
have a material adverse impact on the company's financial position, results of
operations or cash flows.
FORWARD-LOOKING STATEMENTS GATX reported record results for 1998. Many
economists believe that the U.S. economy is entering a recessionary environment,
but GATX's results reported herein have not been impacted to any significant
extent. However, should a recession develop, GATX's prospective results would
not be immune from the effects thereof if there were significant changes in
demand for its services or assets provided.
Certain statements in Management's Discussion and Analysis constitute
forward-looking statements made pursuant to the safe harbor provision of the
Private Securities Litigation Reform Act of 1995. This information may involve
risks and uncertainties that could cause actual results to differ materially
from the forward-looking statements. Although the company believes that the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, such statements are subject to risks and uncertainties
that could cause actual results to differ materially from those projected. These
risks and uncertainties include, but are not limited to, unanticipated changes
in the markets served by GATX such as the aircraft, petroleum, chemical, rail,
technology and steel industries.
42
<PAGE> 17
GATX Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT NUMBER OF SHARES - - - - - - DOLLARS - - - - - - - - - - - - SHARES - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance at beginning of period $ -- $ 3.4 $ 3.4 26,365 3,418,705 3,431,020
Conversion of preferred stock
into common stock -- (3.4) -- (300) (3,392,340) (12,315)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period -- -- 3.4 26,065 26,365 3,418,705
=========================================
COMMON STOCK
Balance at beginning of period 34.1 28.8 28.6 54,480,556 46,129,548 45,792,814
Issuance of common stock .2 .4 .2 340,107 548,754 275,154
Conversion of preferred stock
into common stock -- 4.9 -- 1,500 7,802,254 61,580
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period 34.3 34.1 28.8 54,822,163 54,480,556 46,129,548
=========================================
TREASURY STOCK
Balance at beginning of period (46.8) (47.0) (47.1) (5,539,440) (5,580,078) (5,581,908)
Issuance of common stock -- .2 .1 1,210 40,638 1,830
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (46.8) (46.8) (47.0) (5,538,230) (5,539,440) (5,580,078)
=========================================
ADDITIONAL CAPITAL
Balance at beginning of period 322.6 314.6 310.5
Issuance of common stock 9.0 13.0 4.1
Conversion of preferred stock
into common stock -- (5.0) --
- --------------------------------------------------------------------------------------
Balance at end of period 331.6 322.6 314.6
REINVESTED EARNINGS
Balance at beginning of period 363.4 463.7 409.0
Net income (loss) 131.9 (50.9) 102.7
Dividends declared (49.3) (49.4) (48.0)
- --------------------------------------------------------------------------------------
Balance at end of period 446.0 363.4 463.7
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
Balance at beginning of period (17.9) 11.4 13.4
Foreign currency translation loss (16.3) (28.3) (7.6)
Unrealized gain (loss) on
securities, net 2.0 (1.0) 5.6
- --------------------------------------------------------------------------------------
Balance at end of period (32.2) (17.9) 11.4
- --------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 732.9 $ 655.4 $ 774.9
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
- --------------------------------------------------------------------------------------
IN MILLIONS/YEAR ENDED DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 131.9 $ (50.9) $ 102.7
Other comprehensive income
(loss), net of tax
Foreign currency translation loss (16.3) (28.3) (7.6)
Unrealized gain (loss) on
securities, net 2.0 (1.0) 5.6
- --------------------------------------------------------------------------------------
Other comprehensive loss (14.3) (29.3) (2.0)
- --------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 117.6 $ (80.2) $ 100.7
======================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE> 18
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial data of business segments for 1998, 1997, and 1996 on pages 32 and 33
are an integral part of the consolidated financial statements of GATX
Corporation and subsidiaries.
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of GATX and its consolidated subsidiaries are
discussed below.
CONSOLIDATION--The consolidated financial statements include the accounts of
GATX and its majority-owned subsidiaries. Investments in 20 to 50 percent-owned
companies and joint ventures are accounted for under the equity method and are
shown as investments in affiliated companies, with operating results shown as
share of affiliates' earnings.
CASH EQUIVALENTS--GATX considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
OPERATING LEASE ASSETS AND FACILITIES--Operating lease assets and facilities are
stated principally at cost. Assets acquired under capital leases are included in
operating lease assets and the related obligations are recorded as liabilities.
Provisions for depreciation include the amortization of the cost of capital
leases and are computed by the straight-line method which results in equal
annual depreciation charges over the estimated useful lives of the assets. The
estimated useful lives of depreciable assets are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C>
Railcars................................................................20-38 years
Buildings, leasehold improvements, storage tanks, and pipelines......... 5-40 years
Great Lakes vessels.....................................................30-40 years
Machinery and related equipment......................................... 3-25 years
Operating lease investments............................................. 3-38 years
- ------------------------------------------------------------------------------------
</TABLE>
GOODWILL--GATX has classified the cost in excess of the fair value of net assets
acquired as goodwill. Goodwill, which is included in other assets, is being
amortized on a straight-line basis over 10 to 40 years. GATX continually
evaluates the existence of goodwill impairment on the basis of whether the
goodwill is recoverable from projected undiscounted net cash flows of the
related business, and in that regard adjusted certain carrying amounts in 1997
(as is explained in Note O) and 1998. In 1998, $6.0 million of goodwill related
to Capital's technology equipment sales business was written off, as that asset
was determined to be impaired. Goodwill, net of accumulated amortization of
$37.5 million and $28.5 million, was $116.6 million and $118.7 million as of
December 31, 1998 and 1997, respectively. Amortization expense was $13.8 million
in 1998, $6.7 million in 1997, and $5.3 million in 1996.
INCOME TAXES--United States income taxes have not been provided on the
undistributed earnings of foreign subsidiaries and affiliates which GATX intends
to permanently reinvest in these foreign operations. The cumulative amount of
such earnings was $190.9 million at December 31, 1998.
OTHER DEFERRED ITEMS--Other deferred items include the accrual for
postretirement benefits other than pensions; environmental, general liability
and workers' compensation reserves; and other deferred credits.
44
<PAGE> 19
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS--GATX uses interest rate and currency
swaps, forwards and similar contracts to set interest and exchange rates on
existing or anticipated transactions. These instruments qualify for hedge
accounting. Fair values of GATX's off-balance sheet financial instruments
(futures, swaps, forwards, options, guarantees, and lending and purchase
commitments) are based on current market prices, settlement values or fees
currently charged to enter into similar agreements. The fair values of the hedge
contracts are not recognized in the financial statements. Net amounts paid or
received on such contracts are recognized over the term of the contract as an
adjustment to interest expense or the basis of the hedged financial instrument.
ENVIRONMENTAL LIABILITIES--Expenditures that relate to current or future
operations are expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do not contribute
to current or future revenue generation, are charged to environmental reserves.
Reserves are recorded in accordance with accounting guidelines to cover work at
identified sites when GATX's liability for environmental clean-up is both
probable and a minimum estimate of associated costs can be made; adjustments to
initial estimates are recorded as necessary.
REVENUE RECOGNITION--The majority of GATX's gross income is derived from the
rentals of railcars, commercial aircraft, Great Lakes vessels, and technology
equipment as well as terminaling, warehousing and logistics services. In
addition, income is derived from technology equipment sales, finance leases,
asset remarketing, secured loans and other services.
FOREIGN CURRENCY TRANSLATION--The assets and liabilities of GATX operations
located outside the United States are translated at exchange rates in effect at
year end, and income statements are translated at the average exchange rates for
the year. Gains or losses resulting from the translation of foreign currency
financial statements are deferred and recorded as a separate component of
consolidated shareholders' equity. The cumulative foreign currency translation
loss recorded in accumulated other comprehensive loss was $(38.8) million and
$(22.5) million at the end of 1998 and 1997, respectively.
INVESTMENTS IN EQUITY SECURITIES--Financial Services' venture leasing portfolio
includes stock and stock warrants held as available-for-sale securities. The
unrealized gain on these securities, recorded in accumulated other comprehensive
loss was $6.6 million and $4.6 million at the end of 1998 and 1997,
respectively.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as revenues and expenses during the reporting
period. Actual amounts when ultimately realized could differ from those
estimates.
45
<PAGE> 20
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EARNINGS PER SHARE--Basic and diluted earnings per share are determined in
accordance with the requirements of Statement of Financial Accounting Standards
No. 128. Basic EPS is calculated as net income (loss) available to common
shareholders, adjusted for preferred dividends, divided by the weighted average
number of common shares outstanding. Diluted EPS is calculated as net income
(loss) divided by the sum of the weighted average number of common shares
outstanding and common stock equivalents. Common stock equivalents include
shares issuable upon exercise of employee stock options (reduced by the number
of shares assumed to be repurchased by the option proceeds) and also assumes all
preferred stock has been converted into common shares if the effect of such
conversion is not antidilutive.
NEW ACCOUNTING PRONOUNCEMENTS--In 1998, GATX adopted the Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
company's net income or shareholders' equity. Comprehensive income (loss)
consists of net income (loss), foreign currency translation adjustments and
changes in unrealized gain (loss) on securities and is presented in the
Consolidated Statements of Comprehensive Income (Loss). Prior year consolidated
financial statements have been reclassified to conform with SFAS 130
requirements.
GATX adopted the Statement of Financial Accounting Standards No. 131,
Disclosures About Segments of an Enterprise and Related Information ("SFAS
131"), in 1998 which changes the way the company reports information about its
operating segments. The adoption of SFAS 131 did not affect consolidated results
of operations or financial position, but did affect the disclosure of segment
information. The information for 1997 and 1996 has been restated from the prior
years' presentation in order to conform with the 1998 presentation. See segment
discussion at page 32.
In 1998, the AICPA issued Statement of Position 98-1, Accounting For the Costs
of Computer Software Developed or Obtained For Internal Use ("SOP 98-1"). SOP
98-1 is effective for financial statements for years beginning after December
15, 1998 and requires the capitalization of certain costs incurred after the
date of adoption in connection with developing or obtaining software for
internal use. The company currently expenses such costs incurred. Management is
currently assessing the impact that the adoption of SOP 98-1 will have on the
company's financial position, results of operations, and cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which
is required to be adopted in years beginning after June 15, 1999. GATX, which
utilizes fundamental derivatives to hedge changes in interest rates and foreign
currencies, expects to adopt SFAS 133 effective January 1, 2000. This new
accounting standard will require that all derivatives be recorded on the balance
sheet at fair value. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in the fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Management is currently assessing the impact that the adoption of SFAS 133 will
have on the company's financial position, results of operations, and cash flows.
RECLASSIFICATIONS--Certain amounts in the 1997 and 1996 financial statements
have been reclassified to conform to the 1998 presentation.
46
<PAGE> 21
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--ACCOUNTING FOR LEASES
The following information pertains to GATX as a lessor:
FINANCE LEASES--GATX's finance leases include direct financing leases and
leveraged leases. Financing leases which are financed principally with
nonrecourse borrowings at lease inception and which meet certain criteria are
accounted for as leveraged leases. Leveraged lease contracts receivable are
stated net of the related nonrecourse debt. The components of the investment in
finance leases were (in millions):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
DECEMBER 31 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Net minimum future lease receivables................ $ 690.0 $ 773.6
Estimated residual values........................... 202.5 415.9
- ---------------------------------------------------------------------------
892.5 1,189.5
Less-Unearned income................................ (216.5) (312.5)
- ---------------------------------------------------------------------------
Investment in finance leases........................ $ 676.0 $ 877.0
===========================================================================
</TABLE>
OPERATING LEASES--The majority of railcar and tank storage assets and certain
other equipment leases included in operating lease assets are accounted for
operating leases.
MINIMUM FUTURE RECEIPTS--Minimum future lease receipts from finance leases a
minimum future rental receipts from noncancelable operating leases by year a
December 31, 1998 were (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
FINANCE OPERATING
LEASES LEASES TOTAL
- --------------------------------------------------------------------------
<S> <C> <C> <C>
1999................................. $ 225.8 $ 737.9 $ 963.7
2000................................. 140.0 537.2 677.2
2001................................. 93.7 380.6 474.3
2002................................. 57.4 262.3 319.7
2003................................. 40.9 155.8 196.7
Years thereafter..................... 132.2 502.0 634.2
- --------------------------------------------------------------------------
$ 690.0 $2,575.8 $3,265.8
==========================================================================
</TABLE>
The following information pertains to GATX as a lessee:
CAPITAL LEASES--Assets classified as operating lease assets and finance leases
which have been financed under capital leases were (in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
DECEMBER 31 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Railcars................................... $ 151.1 $ 152.0
Great Lakes vessels........................ 159.5 159.5
Other...................................... 1.8 --
- ------------------------------------------------------------------
312.4 311.5
Less-Allowance for depreciation............ (183.8) (173.5)
- ------------------------------------------------------------------
128.6 138.0
Finance leases............................. 8.6 9.9
- ------------------------------------------------------------------
$ 137.2 $ 147.9
==================================================================
</TABLE>
47
<PAGE> 22
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OPERATING LEASES--GATX has financed railcars, aircraft, warehouses, and other
assets through sale-leasebacks which are accounted for as operating leases. In
addition, GATX leases certain other assets and office facilities. Total rental
expense, net of sublease income, for the years ended December 31, 1998, 1997,
and 1996 was $198.9 million, $186.5 million, and $170.2 million, respectively.
Sublease income was $3.8 million, $5.1 million, and $6.9 million, in 1998, 1997,
and 1996, respectively.
FUTURE MINIMUM RENTAL PAYMENTS--Future minimum rental payments due under
noncancelable leases at December 31, 1998 were (in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
NONRECOURSE
CAPITAL OPERATING OPERATING
LEASES LEASES LEASES
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999....................................................... $ 32.7 $ 153.5 $ 24.0
2000....................................................... 31.8 137.3 27.7
2001....................................................... 30.8 127.0 27.7
2002....................................................... 30.3 128.8 25.2
2003....................................................... 28.3 112.5 28.0
Years thereafter........................................... 157.5 1,336.3 452.2
- ------------------------------------------------------------------------------------------------
$311.4 $1,995.4 $584.8
Less--Amounts representing interest......................... (112.9)
- ------------------------------------------------------------------------------------------------
Present value of future minimum capital lease payments..... $198.5
================================================================================================
</TABLE>
The above capital lease amounts and certain operating leases do not include the
costs of licenses, taxes, insurance, and maintenance which GATX is required to
pay. Future minimum operating lease payments have not been reduced by aggregate
future noncancelable sublease rentals of $2.8 million. Interest expense on the
above capital leases was $16.5 million in 1998, $17.6 million in 1997, and $19.1
million in 1996.
The amounts shown as nonrecourse operating leases reflect rental payments of two
bankruptcy remote special purpose corporations which are wholly-owned by GATX.
These rentals are consolidated for accounting purposes but do not represent
legal obligations of GATX.
NOTE C--SECURED LOANS
Investments in secured loans are stated at the principal amount outstanding plus
accrued interest. The loans are collateralized by equipment. As of December 31,
1998, secured loan principal due by year was as follows (in millions):
<TABLE>
<CAPTION>
- ---------------------------------------------------------
LOAN
PRINCIPAL
- ---------------------------------------------------------
<S> <C>
1999............................................. $ 69.8
2000............................................. 29.7
2001............................................. 25.4
2002............................................. 29.3
2003............................................. 59.1
Years thereafter................................. 28.3
- --------------------------------------------------------
$241.6
========================================================
</TABLE>
48
<PAGE> 23
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--INVESTMENTS IN AFFILIATED COMPANIES
GATX has investments in 25 to 50 percent-owned companies and joint ventures
which are accounted for using the equity method. These domestic and foreign
investments are in businesses similar to those of GATX's principal subsidiaries.
Distributions received from such affiliates were $167.5 million, $71.6 million,
and $36.4 million in 1998, 1997 and 1996, respectively. These distributions
reflect both operating results and return of principal.
For all affiliated companies held at the end of a year, operating results, as if
GATX held 100 percent interest, were (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Gross income...................... $ 611.9 $ 505.7 $ 360.9
Net income........................ 102.0 74.4 57.2
=======================================================================
</TABLE>
For all affiliated companies held at the end of a year, summarized balance sheet
data, as if GATX held 100 percent interest, were (in millions):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
DECEMBER 31 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Total assets......................................$ 4,200.7 $ 3,199.1
Long-term liabilities............................. 2,056.6 910.3
Other liabilities................................. 339.7 607.3
- -------------------------------------------------------------------------
Shareholders' equity..............................$ 1,804.4 $ 1,681.5
=========================================================================
</TABLE>
NOTE E--FOREIGN OPERATIONS
GATX has a number of investments in subsidiary and affiliated companies which
are located in or derive gross income from foreign countries. Foreign entities
contribute significantly to share of affiliates' earnings. The foreign
identifiable assets represent investments in affiliated companies as well as
fully consolidated assets for a Canadian railcar subsidiary, a Mexican railcar
operation, and foreign lease and loan investments.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
IN MILLIONS
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
GROSS INCOME 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign.................................$ 219.7 $ 188.8 $ 112.5
United States........................... 1,543.4 1,513.1 1,301.9
- ------------------------------------------------------------------------------
$ 1,763.1 $ 1,701.9 $ 1,414.4
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
SHARE OF AFFILIATES' EARNINGS 1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign...............................$ 24.4 $ 21.6 $ 20.3
United States......................... 19.2 9.3 8.1
- ---------------------------------------------------------------------------
$ 43.6 $ 30.9 $ 28.4
===========================================================================
- -------------------------------------------------------------------------------
DECEMBER 31
IDENTIFIABLE ASSETS 1998 1997 1996
- -------------------------------------------------------------------------------
Foreign..................................$ 856.2 $ 848.2 $ 872.4
United States............................ 4,083.1 4,099.6 3,877.8
- -------------------------------------------------------------------------------
$ 4,939.3 $ 4,947.8 $ 4,750.2
===============================================================================
</TABLE>
Foreign cash flows generated are used to meet local operating needs and for
reinvestment. The translation of the foreign balance sheets into U.S. dollars
results in an unrealized foreign currency translation adjustment, a component of
accumulated other comprehensive income (loss).
49
<PAGE> 24
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--SHORT-TERM DEBT AND LINES OF CREDIT
Short-term debt (in millions) and its weighted average interest rate as of year
end were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
DECEMBER 31 - - - - -1998- - - - - - - - - -1997- - - - -
- ------------------------------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper.............................$ 163.3 6.07% $153.8 6.34%
Other short-term borrowings.................. 136.6 6.14% 216.4 6.33%
- ------------------------------------------------------------------------------------------------
$ 299.9 $370.2
================================================================================================
</TABLE>
At December 31, 1998, certain technology assets and facilities with a net
carrying value of $49.1 million were pledged as collateral for $24.8 million of
other short-term borrowings.
Under a revolving credit agreement with a group of banks, GATC may borrow up to
$350.0 million. While at year end no borrowings were outstanding, availability
under the line was reduced by $35.0 million of commercial paper outstanding.
GATC also had borrowings of $110.7 million under unsecured money market lines at
December 31, 1998.
GATX Capital and two of its wholly-owned subsidiaries have commitments under
credit agreements with a group of banks for revolving credit loans totaling
$397.5 million of which $246.3 million was available at December 31, 1998;
availability under the line was reduced by $151.2 million of outstanding
commercial paper and other short-term borrowings.
Both GATC's and GATX Capital's primary revolving credit agreements contain
various restrictive covenants, including requirements to maintain a defined
minimum net worth and certain financial ratios. Both GATC and GATX Capital met
all credit agreement requirements at December 31, 1998.
Interest expense on short-term debt was $23.5 million in 1998, $24.0 million in
1997, and $26.2 million in 1996.
NOTE G--LONG-TERM DEBT
Long-term debt (in millions) and the range of interest rates as of year end
were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
INTEREST FINAL DECEMBER 31 DECEMBER 31
RATES MATURITY 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Variable rate:
Term notes.......................... 5.46%-6.31% 1999-2003 $ 195.7 $ 67.5
Nonrecourse obligations............. 5.38%-7.38% 2000-2002 37.5 44.6
- ------------------------------------------------------------------------------------------------
233.2 112.1
- ------------------------------------------------------------------------------------------------
Fixed rate:
Term notes.......................... 5.56%-10.88% 1999-2012 1,887.7 2,066.0
Nonrecourse obligations............. 5.40%- 9.75% 1999-2013 414.4 363.6
Industrial revenue bonds............ 6.63%- 7.30% 2019-2024 87.9 87.9
- ------------------------------------------------------------------------------------------------
2,390.0 2,517.5
- ------------------------------------------------------------------------------------------------
$ 2,623.2 $2,629.6
================================================================================================
</TABLE>
Maturities of GATX's long-term debt as of December 31, 1998 for each of the
years 1999 through 2003 were (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------
MATURITIES
- -----------------------------------------------------------
<S> <C>
1999............................................ $331.1
2000............................................ 530.4
2001............................................ 256.5
2002............................................ 273.7
2003............................................ 313.6
===========================================================
</TABLE>
50
<PAGE> 25
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1998, certain technology assets, facilities, aircraft, railcars,
vessels and warehouse equipment with a net carrying value of $480.4 million were
pledged as collateral for $403.1 million of notes and bonds.
Interest cost incurred on long-term debt, net of capitalized interest, was
$194.9 million in 1998, $180.8 million in 1997, and $157.5 million in 1996.
Interest cost capitalized as part of the cost of construction of major assets
was $3.3 million in 1998, $2.5 million in 1997, and $6.8 million in 1996.
NOTE H--OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, GATX utilizes off-balance sheet financial
instruments to manage financial market risk, including interest rate and foreign
exchange risk.
At December 31, 1998, GATX had the following off-balance sheet financial
instruments (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
NOTIONAL PAY RATE/ RECEIVE
INTEREST RATE SWAPS AMOUNT INDEX RATE/INDEX MATURITY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GATX pays fixed, receives floating...... $772.8 4.80-8.75% LIBOR 1999-2003
GATX pays floating, receives fixed...... 702.0 LIBOR 5.41-7.65% 1999-2008
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CURRENCY SWAPS RECEIVE DELIVER MATURITY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Canadian dollar swaps................................... $142.6 C$194.8 2001-2011
Deutschemark swap....................................... $ 40.5 72.5DM 2002
==================================================================================================
</TABLE>
GATX had the following interest rate hedge activity (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS PAY FIXED PAY FLOATING
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, 1997............................................. $ 907.9 $1,137.0
Additions.............................................................. 44.7 --
Maturities............................................................. (200.0) (447.0)
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1997........................................... 752.6 690.0
Additions.............................................................. 370.2 30.0
Maturities............................................................. (350.0) (18.0)
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1998........................................... $ 772.8 $ 702.0
==================================================================================================
</TABLE>
GATX uses interest rate swaps and forwards to manage its assets and liabilities,
to convert floating rate debt to fixed rate debt (or fixed to floating) and to
manage interest rate risk associated with the anticipated issuance of debt. At
GATC, interest rate swaps are utilized to better match the cash flow
characteristics of its debt portfolio and its railcar leases. Railcar assets are
financed with long-term fixed rate debt or through sale-leasebacks. However, the
railcar assets are placed on lease with average new lease terms of five years;
the average renewal term is three years. Rents are fixed over these lease terms.
Interest rate swaps effectively convert GATC's long-term fixed rate debt to
fixed rate debt with maturities of three months to five years. Through the swap
program, changes in GATC's interest expense are expected to better reflect
changes in railcar lease rates. Also, GATX Capital uses interest rate swaps in
addition to commercial paper and floating rate medium-term notes to match fund
its floating rate lease and loan portfolio with floating rate borrowings.
51
<PAGE> 26
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In its swaps, GATX agrees to exchange, at specific intervals, the difference
between fixed and floating rate interest amounts calculated on an agreed upon
notional principal amount. The swaps have in effect converted $772.8 million of
long-term fixed rate debt into one to three year fixed rate debt.
The net amount payable or receivable from the interest rate swap agreements is
accrued as an adjustment to interest expense. The fair value of its interest
rate swap agreements is an estimate of the amount the company would receive or
pay to terminate those agreements. At December 31, 1998, GATX would have
received $36.6 million if the swaps were terminated; GATX would have received
$14.6 million if the swaps were terminated at December 31, 1997.
GATX has entered into currency swaps to hedge $142.6 million in debt obligations
at its Canadian subsidiaries and $40.5 million in debt obligations associated
with a German joint venture. The fair market value of its currency swap
agreements is an estimate of the amount the company would receive or pay to
terminate those agreements. At December 31, 1998, GATX would have received $23.3
million if the swaps were terminated; GATX would have received $10.9 million if
the swaps were terminated at December 31, 1997.
In the event that a counterparty fails to meet the terms of the interest rate
swap agreement or a foreign exchange contract, GATX's exposure is limited to the
interest rate or currency differential. GATX manages the credit risk of
counterparties by dealing only with institutions that the company considers
financially sound and by avoiding concentrations of risk with a single
counterparty. GATX considers the risk of nonperformance to be remote.
NOTE I--FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The following methods and assumptions were used to estimate the fair value of
financial instruments:
The carrying amount of cash and cash equivalents, trade receivables, accounts
payable, and short-term debt approximates fair value because of the short
maturity of those instruments. Also, the carrying amount of variable rate
long-term debt and variable rate secured loans approximates fair value.
The fair value of fixed rate secured loans was estimated using discounted cash
flow analyses, at interest rates currently offered for loans with similar terms
to borrowers of similar credit quality.
The fair value of fixed rate long-term debt was estimated by performing a
discounted cash flow calculation using the term and market interest rate for
each note based on GATX's current incremental borrowing rates for similar
borrowing arrangements. Portions of fixed rate long-term debt have effectively
been converted to floating rate debt by utilizing interest rate swaps (GATX pays
floating, receives fixed), as described in Note H, Off-Balance Sheet Financial
Instruments. In such instances, the increase (decrease) in the fair value of the
fixed rate long-term debt would be offset in part by the increase (decrease) in
the fair value of the interest rate swap.
The following table sets forth the carrying amounts and fair values of the
company's fixed rate instruments (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31 - - - - -1998- - - - - - - - - -1997- - - - -
- --------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Secured loans-fixed......... $ 222.8 $ 219.5 $ 153.6 $ 157.1
Long-term debt-fixed........ 2,390.0 2,467.1 2,517.5 2,614.6
- --------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 27
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--PENSION AND OTHER POSTRETIREMENT BENEFITS
GATX and certain of its subsidiaries maintain non-contributory defined benefit
pension plans covering their respective employees. Benefits payable under the
pension plans are based on years of service and/or final average salary. The
funding policy for the pension plans is based on an actuarially determined cost
method allowable under Internal Revenue Service regulations.
In addition to the pension plans, GATX's other postretirement plans provide
health care, life insurance and other benefits for certain retired employees who
meet established criteria. Most domestic employees are eligible for health care
and life insurance benefits if they retire from GATX with immediate pension
benefits under the GATX plan. The plans are either contributory or
non-contributory, depending on various factors.
In 1998, GATX adopted the Statement of Financial Accounting Standards No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits. While
the new standard does not change the measurement or recognition of costs for
pension or other postretirement plans, it does standardize disclosures and
eliminates those that are no longer considered useful. The following tables,
prepared in accordance with the new standard, set forth pension and other
postretirement obligations and plan assets (in millions) as of December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PENSION BENEFITS RETIREE HEALTH AND LIFE
- -------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of period......... $ 276.1 $ 255.2 $ 68.8 $ 70.3
Service cost...................................... 5.9 5.8 .5 .5
Interest cost..................................... 20.4 20.0 4.8 5.1
Plan amendments................................... (.6) -- -- --
Actuarial loss/(gain)............................. 24.8 14.2 (.5) (1.7)
Benefits paid..................................... (22.0) (21.6) (6.5) (6.8)
Curtailments...................................... -- (.7) 1.3 1.4
Special termination benefits...................... -- 3.2 -- --
- ------------------------------------------------------------------------------------------------
Benefit obligation at end of period............... $ 304.6 $ 276.1 $ 68.4 $ 68.8
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PENSION BENEFITS RETIREE HEALTH AND LIFE
- ------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN FAIR VALUE OF PLAN ASSETS:
Plan assets at beginning of period................ $ 299.1 $ 272.0 $-- $ --
Actual return on plan assets...................... 44.4 44.7 -- --
Company contributions............................. 4.3 4.0 6.5 6.8
Benefits paid..................................... (22.0) (21.6) (6.5) (6.8)
- ------------------------------------------------------------------------------------------------
Plan assets at end of period...................... $ 325.8 $ 299.1 $ -- $ --
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PENSION BENEFITS RETIREE HEALTH AND LIFE
- ------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FUNDED STATUS:
Funded status of the plan......................... $ 21.2 $ 23.0 $(68.4) $(68.8)
Unrecognized net gain............................. (23.0) (25.7) (12.1) (13.2)
Unrecognized prior service cost................... 2.1 3.1 -- --
Unrecognized net transition (asset) obligation.... (.3) (.3) .5 --
- ------------------------------------------------------------------------------------------------
Prepaid (accrued) cost............................ $ -- $ .1 $(80.0) $(82.0)
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PENSION BENEFITS RETIREE HEALTH AND LIFE
- ------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMOUNT RECOGNIZED:
Prepaid benefit cost.............................. $ 6.7 $ 6.4 $ -- $ --
Accrued benefit liability......................... (8.4) (8.0) (80.5) (82.5)
Intangible asset.................................. 1.7 1.7 .5 .5
- ------------------------------------------------------------------------------------------------
Total recognized.................................. $ -- $ .1 $(80.0) $(82.0)
================================================================================================
</TABLE>
53
<PAGE> 28
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of pension and other postretirement benefit costs are as follows
(in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PENSION BENEFITS RETIREE HEALTH AND LIFE
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost............................. $ 5.9 $ 5.8 $ 5.5 $ .5 $ .5 $ .5
Interest cost............................ 20.4 20.0 18.7 4.8 5.1 5.3
Expected return on plan assets........... (22.6) (21.5) (21.0) -- -- --
Amortization of:
Unrecognized prior service cost......... .4 .4 .4 -- -- --
Unrecognized net (gain) loss............ .1 .1 -- (.6) (.5) (.5)
Unrecognized net (asset) obligation..... -- (.1) -- -- -- .1
Recognized gain due to
settlement or curtailment.............. -- (.7) -- -- -- --
Recognized special termination
benefits expense....................... -- 3.2 -- -- 1.1 --
- ----------------------------------------------------------------------------------------------------------
Net costs................................ $ 4.2 $ 7.2 $ 3.6 $ 4.7 $6.2 $5.4
==========================================================================================================
</TABLE>
As permitted by Statement of Financial Accounting Standards No. 87, GATX
amortizes the prior service cost using a straight-line method over the average
remaining service period of employees to receive benefits under the plan.
Assumptions as of December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PENSION BENEFITS RETIREE HEALTH AND LIFE
- -------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate.................................. 7.00% 7.75% 7.00% 7.75%
Expected return on plan assets................. 8.75% 8.75% N/A n/a
Rate of compensation increases................. 5.00% 5.00% 5.00% 5.00%
===========================================================================================
</TABLE>
The assumed health care cost trend rate was 5.0% for participants over the age
of 65 and 6.0% for participants under the age of 65 for 1998 and thereafter. The
health care cost trend rate has a significant effect on the other postretirement
benefit cost and obligation. A 1% increase in the trend rate would increase the
cost by $.3 million and the obligation by $3.7 million. A 1% decrease in the
trend rate would decrease the cost by $.3 million and the obligation by $3.0
million.
In addition to contributions to its defined benefit plans, GATX makes
contributions to the multi-employer pension plans of various unions. Further,
GATX and its subsidiaries maintain several 401(k) retirement plans which are
available to substantially all salaried and certain other employee groups. GATX
may contribute to the plans as defined by their respective terms. The
contribution to such plans were (in millions):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contributions to multiemployer pension plans................. $ .6 $1.8 $2.0
Contributions to 401(k) plans................................ 4.2 4.0 3.6
=============================================================================================
</TABLE>
54
<PAGE> 29
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K--INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of GATX's deferred tax liabilities and assets were (in
millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
DECEMBER 31 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Book/tax basis differences due to depreciation ......... $357.5 $343.2
Leveraged leases ....................................... 39.0 52.4
Lease accounting (other than leveraged) ................ 49.0 44.6
Other .................................................. 69.1 52.3
- -----------------------------------------------------------------------------
Total deferred tax liabilities ....................... 514.6 492.5
Deferred tax assets:
Alternative minimum tax credit ......................... 52.8 54.0
Accruals not currently deductible for tax purposes ..... 48.7 52.5
Allowance for possible losses .......................... 50.7 47.7
Postretirement benefits other than pensions ............ 27.1 28.2
Other .................................................. 10.2 12.5
- -----------------------------------------------------------------------------
Total deferred tax assets ............................ 189.5 194.9
=============================================================================
Net deferred tax liabilities ......................... $325.1 $297.6
=============================================================================
</TABLE>
At December 31, 1998, GATX had an alternative minimum tax credit of $52.8
million that can be carried forward indefinitely to reduce future regular tax
liabilities.
GATX and its United States subsidiaries file a consolidated federal income tax
return. Amounts shown as Current--Federal represent taxes payable as determined
by the Alternative Minimum Tax. Included in 1997's total deferred tax credit is
a $56.5 million deferred tax benefit resulting from Terminals' $185.8 million
pretax restructuring charge. Income taxes consisted of (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current-
Domestic:
Federal............................. $ 26.2 $ 28.0 $ 24.4
State and local..................... 3.2 1.1 2.4
- -----------------------------------------------------------------------------
29.4 29.1 26.8
Foreign............................... 6.1 3.9 2.4
- -----------------------------------------------------------------------------
35.5 33.0 29.2
Deferred-
Domestic:
Federal............................. 27.3 (45.6) 18.9
State and local..................... 5.7 .4 4.9
- -----------------------------------------------------------------------------
33.0 (45.2) 23.8
Foreign............................... 5.8 6.7 1.4
- -----------------------------------------------------------------------------
38.8 (38.5) 25.2
- -----------------------------------------------------------------------------
Income tax expense (benefit)............ $ 74.3 $ (5.5) $ 54.4
=============================================================================
Income taxes paid....................... $ 33.7 $ 35.5 $ 33.6
=============================================================================
</TABLE>
55
<PAGE> 30
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The reasons for the difference between GATX's effective income tax rate and the
federal statutory income tax rate were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1997(A) 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal statutory income tax rate............. 35.0% 35.0% 35.0% 35.0%
Add (deduct) effect of:
Corporate owned life insurance.............. (1.3) 2.6 (1.7) (2.0)
State income taxes.......................... 3.6 (5.6) 3.6 3.6
1997 restructuring charges.................. -- (19.0) -- --
Foreign income.............................. 4.5 (2.4) 1.5 1.7
Goodwill amortization....................... 2.6 (2.0) 1.3 1.1
Minority interest........................... -- (.4) .3 .3
Other....................................... 1.3 (1.9) 1.1 2.6
- ------------------------------------------------------------------------------------------------
Effective income tax rate..................... 45.7% 6.3% 41.1% 42.3%
================================================================================================
</TABLE>
(A) Before restructuring charges
NOTE L--SHAREHOLDERS' EQUITY
The company's shareholders approved an amendment to GATX's certificate of
incorporation which increased authorized shares of common stock from 60 million
to 120 million shares and effected a two-for-one stock split, in the form of a
stock dividend, effective June 1, 1998. Par value remained at $.625 per share
after the split. All share and per share amounts in the accompanying
consolidated financial statements have been restated accordingly.
GATX's certificate of incorporation also authorizes 5 million shares of
preferred stock at a par value of $1.00 per share. Shares of preferred stock
issued and outstanding consist of Series A and B $2.50 cumulative convertible
preferred stock, which entitles holders to a cumulative annual cash dividend of
$2.50 per share. Each share of such preferred stock may be called for redemption
by GATX at $63 per share, has a liquidating value of $60 per share, and may be
converted into 5 shares of common stock.
Holders of $2.50 convertible preferred stock and common stock are entitled to
one vote for each share held. Except in certain instances, all such classes vote
together as a single class.
A total of 4,753,591 shares of common stock were reserved at December 31, 1998,
for the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------
<S> <C>
Conversion of outstanding preferred stock....................... 127,868
Incentive compensation programs................................. 4,589,023
Employee service awards......................................... 36,700
- --------------------------------------------------------------------------
4,753,591
==========================================================================
</TABLE>
During 1997, GATX called for redemption all the outstanding shares of its $3.875
cumulative convertible preferred stock, each share of which was convertible into
2.2988 shares of common stock. As a result of the redemption, 3.4 million
preferred shares were converted to 7.8 million shares of common.
In an effort to ensure the fair value to all shareholders in the event of an
unsolicited takeover offer for the company, GATX adopted a Shareholders' Rights
Plan. Shareholders of record on August 14, 1998 received a distribution of one
right for each share of the company's common stock held. Initially the rights
are represented by GATX's common stock certificates and are not exercisable. The
rights will be exercisable only if a person acquires or announces a tender offer
which would result in beneficial ownership of 20 percent or more of the
company's common stock. If a person acquires beneficial ownership of 20 percent
or more of the company's common stock, all holders of rights other than the
acquiring person will be entitled to purchase the company's common stock at half
price. The rights are scheduled to expire on August 14, 2008.
56
<PAGE> 31
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M--INCENTIVE COMPENSATION PLANS
The GATX Corporation 1995 Long Term Incentive Compensation Plan (the 1995 Plan)
contains provisions for the granting of non-qualified stock options, incentive
stock options, stock appreciation rights (SARs), cash and common stock
individual performance units (IPUs), restricted stock rights, restricted common
stock and performance awards. An aggregate of 3,000,000 shares of common stock
may be issued under the 1995 Plan. As of December 31, 1998, 943,000 shares are
available for issuance under the 1995 Plan.
Non-qualified stock options and incentive stock options may be granted for the
purchase of common stock for periods not longer than ten years from the date of
grant. The exercise price will be not less than the higher of market value at
date of grant or par value of the common stock. All options become exercisable
commencing on a date no earlier than one year from the date of grant.
SARs can be issued in conjunction with non-qualified or incentive stock options
and entitle the holder to receive the difference between the option price and
fair market value of the common stock at time of exercise, either in shares of
common stock, cash, or a combination of the two at GATX's discretion. Exercise
of SARs results in cancellation of the underlying options. During 1998, no SARs
were issued and none were outstanding.
IPUs may be granted to key employees and, if predetermined performance goals are
met, will be redeemed in cash and common stock, as applicable, with the
redemption value determined in part by the fair market value of the common stock
as of the date of redemption and in part by the extent to which pre-established
performance goals have been achieved. A total of 27,442 IPUs were granted during
1998 and 60,316 IPUs in total were outstanding at the end of the year. In 1998,
there were no payouts to participants in redemption of previously issued IPUs.
Restricted stock rights may be granted to key employees entitling them to
receive a specified number of shares of restricted common stock. The recipients
of restricted common stock are entitled to all dividends and voting rights, but
the shares are not transferable prior to the expiration of a "restriction
period" as determined at the discretion of the Compensation Committee of the
Board of Directors. Performance Awards are granted to employees who have been
granted restricted stock rights or restricted common stock, but these Awards may
not exceed the market value of the restricted common stock when restrictions
lapse. The Performance Awards provide cash payments if certain criteria and
earnings goals are met over a predetermined period. During 1998, five grants
totaling 1,800 shares of restricted stock were made.
Stock options are outstanding under the GATX Corporation 1985 Long Term
Incentive Compensation Plan (the 1985 Plan), as amended, but no additional
options, stock or awards may be issued thereunder.
57
<PAGE> 32
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Data with respect to both plans, including the range of exercise prices per
share for 1998 and 1997, are set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NUMBER OF SHARES UNDER STOCK OPTION PLANS
1998 1997 PRICE PER SHARE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1.............................3,321,300 3,334,300 $ 9.97-33.47
Granted.............................................. 543,350 611,000 33.38-39.72
Exercised............................................ (372,849) (564,950) 9.97-33.47
Canceled............................................. (103,526) (59,050) 23.78-39.72
- -------------------------------------------------------------------------------------------------
Outstanding at December 31...........................3,388,275 3,321,300 $ 9.97-39.72
- -------------------------------------------------------------------------------------------------
Outstanding at December 31, by year granted:
1988........................... -- 40,000 $ 12.83
1989........................... 47,000 102,200 14.97
1990........................... 64,000 91,000 9.97
1991........................... 185,500 213,300 14.00
1992........................... 154,200 202,300 12.75
1993........................... 306,800 328,300 18.84
1994........................... 416,700 476,400 20.91
1995........................... 501,400 565,300 23.78-25.28
1996........................... 639,025 706,300 23.16-24.91
1997........................... 550,300 596,200 27.44-33.47
1998........................... 523,350 -- 33.38-39.72
- -------------------------------------------------------------------------------------------------
Total................................................3,388,275 3,321,300 $ 9.97-39.72
=================================================================================================
Options exercisable at December 31...................2,459,525 2,290,866
- -------------------------------------------------------------------------------------------------
Options available for future grant at December 31.... 943,000 1,384,624
=================================================================================================
</TABLE>
ACCOUNTING FOR STOCK OPTIONS GATX has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
for its employee stock options. Under these guidelines, no compensation expense
is recognized because the exercise price of GATX's employee stock options equals
the market price of the underlying stock on the date of grant.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and has been determined as if GATX had accounted for
its employee stock options under the fair value method. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions for 1998, 1997 and 1996: dividend yield of
3.1%, 2.8% and 3.6%, respectively; volatility factor of the expected market
price of GATX's common stock of .19, .16 and .15, respectively; expected life of
the option of six years, four years and five years, respectively; and weighted
average risk-free interest rate of 4.8%, 5.9% and 6.1%, respectively.
The Black-Scholes model, one of the most frequently referenced models to value
options, was developed for use in estimating the fair value of traded options
which 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.
58
<PAGE> 33
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option vesting period. The resultant pro forma
net income (loss) and earnings (loss) per share were (in millions except for
earnings per share information):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income (loss)................................. $129.8 $(52.2) $101.6
Pro forma earnings (loss) per share:
Basic..................................................... $ 2.64 $(1.30) $ 2.19
Diluted................................................... $ 2.57 $(1.30) $ 2.08
=================================================================================================
</TABLE>
Because SFAS 123's provisions are prospective (retroactive application is
prohibited), awards granted prior to 1995 are not considered in the above pro
forma amounts. Additionally, because options generally are granted late in the
year and vest over a three-year period, the pro forma amounts above do not
reflect a full annualized effect.
NOTE N--COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
GATX's revenues are derived from a wide range of industries and companies.
Approximately 20% of total revenues are generated from the transportation or
storage of products for the chemical industry; for similar services, 18% of
revenues are derived from the petroleum industry. The sale and leasing of
technology equipment represents about 17% of total revenues. GATX also provides
services and products to the chemical, petroleum, and technology markets through
its affiliates, which are accounted for under the equity method. In addition,
approximately 11% of GATX's assets consist of commercial aircraft operated by
various domestic and international airlines.
Under its lease agreements, GATX retains legal ownership of the asset except
where such assets have been financed by sale-leasebacks. With most loan
financings, the loan is collateralized by the equipment. GATX performs credit
evaluations prior to approval of a lease or loan contract. Subsequently, the
creditworthiness of the customer and the value of the collateral are monitored
on an ongoing basis. GATX maintains an allowance for possible losses and other
reserves to provide for potential losses which could arise should customers
become unable to discharge their obligations to GATX and to provide for
permanent declines in investment value.
At December 31, 1998, GATX had commitments of $341 million for orders and
options by aircraft joint ventures for interests in 25 new aircraft to be
delivered between 1999-2001. GATX also has other firm commitments totaling $361
million, primarily to acquire railcars and other equipment and to upgrade
terminal and repair facilities.
GATX has issued $222 million of residual and rental guarantees at December 31,
1998. Guarantees are commitments issued to guarantee performance of an affiliate
to a third party, generally in the form of lease and loan payment guarantees, or
to guarantee the value of an asset at the end of a lease. Lease and loan payment
guarantees generally involve guaranteeing repayment of the financing required to
acquire assets being leased by an affiliate to third parties, and are in lieu of
making direct equity investments in the affiliate. Asset value guarantees
represent GATX Capital's commitment to a third party that an asset or group of
assets will be worth a specified amount at the end of a lease term. Based on
known and expected market conditions, management does not believe that the asset
value guarantees will result in any adverse financial impact to GATX.
59
<PAGE> 34
GATX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GATX is also a party to letters of credit and bonds totaling $24 million and $18
million at December 31, 1998 and 1997, respectively. In GATX's past experience,
virtually no claims have been made against these financial instruments.
Management does not expect any material losses to result from these
off-balance-sheet instruments because performance is not expected to be
required, and, therefore, is of the opinion that the fair value of these
instruments is zero.
GATX and its subsidiaries are engaged in various matters of litigation and have
a number of unresolved claims pending, including proceedings under governmental
laws and regulations related to environmental matters. While the amounts claimed
are substantial and the ultimate liability with respect to such litigation and
claims cannot be determined at this time, it is the opinion of management that
damages, if any, required to be paid by GATX and its subsidiaries in the
discharge of such liability are not likely to be material to GATX's consolidated
financial position or results of operations.
NOTE O--RESTRUCTURING CHARGES
During 1997 strategic decisions resulted in a $225 million ($163 million
after-tax) restructuring charge related to Terminals and Logistics. Terminals'
portion of the restructuring charges was based on the decision to close, sell or
revalue certain domestic and foreign terminal locations to reflect permanent
changes in market conditions. The charge primarily represents the write-down of
asset values with minor costs related to closure activities. The charge at
Logistics represents the write-down of goodwill to reflect the impairment of
certain acquired facilities. The carrying values of certain assets at Terminals
and Logistics were written down to fair value as described in Note A.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
IN MILLIONS PRE-TAX AFTER-TAX
- -----------------------------------------------------------
<S> <C> <C>
Terminals........................... $185.8 $123.8
Logistics........................... 39.0 39.0
- -----------------------------------------------------------
Total............................... $224.8 $162.8
===========================================================
</TABLE>
During 1998 and early 1999, Terminals acted upon its restructuring plan by
divesting certain domestic and foreign terminal locations.
60
<PAGE> 35
GATX Corporation and Subsidiaries
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
AND COMMON STOCK INFORMATION
<TABLE>
<CAPTION>
OPERATING BASIC NET DILUTED NET
GROSS EXPENSES AND NET INCOME INCOME (LOSS) INCOME (LOSS)
IN MILLIONS, EXCEPT PER SHARE DATA INCOME DEPRECIATION (LOSS) PER SHARE (A) PER SHARE (A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
FIRST QUARTER ......................... $ 408.9 $ 243.5 $ 37.4 $ .76 $ .74
SECOND QUARTER ........................ 437.6 274.1 30.8 .63 .61
THIRD QUARTER ......................... 459.5 283.7 38.1 .78 .76
FOURTH QUARTER ........................ 457.1 290.4 25.6 .52 .51
- -------------------------------------------------------------------------------------------------------------
TOTAL ................................. $1,763.1 $1,091.7 $ 131.9 $ 2.68 $ 2.62
=============================================================================================================
1997
First Quarter ......................... 394.6 $ 241.8 $ 31.2 $ .69 $ .63
Second Quarter ........................ 434.7 279.0 30.2 .63 .61
Third Quarter ......................... 430.9 273.2 28.0 .57 .56
Fourth Quarter ........................ 441.7 291.9 (140.3) (2.87) (2.87)(B)
- -------------------------------------------------------------------------------------------------------------
Total.................................. $1,701.9 $1,085.9 $ (50.9) $ (1.28) $ (1.28)(B)
=============================================================================================================
</TABLE>
(A) Quarterly results may not be additive, as per share amounts are computed
independently for each quarter and the full year based on the respective
weighted average common shares and common stock equivalents outstanding.
Amounts have been restated to reflect the 2-for-1 stock split in June 1998.
(B) Conversion of preferred stock is excluded from computation of diluted net
loss per share because of antidilutive effect.
COMMON STOCK INFORMATION GATX common shares are listed on the New York, Chicago
and London Stock Exchanges under ticker symbol GMT.
The approximate number of holders of record of common stock as of February 22,
1999 was 3,769. The following table shows the reported high and low sales price
of GATX common shares on the New York Stock Exchange, the principal market for
GATX shares, and the dividends declared per share:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
COMMON STOCK COMMON STOCK
- ------------------------------------------------------------------------------------------------
HIGH LOW HIGH LOW
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997
FIRST QUARTER............ $40.56 $34.00 First Quarter............$25.25 $23.75
SECOND QUARTER........... 44.13 38.75 Second Quarter........... 29.56 24.06
THIRD QUARTER............ 47.56 31.69 Third Quarter............ 33.88 28.81
FOURTH QUARTER........... 39.00 26.25 Fourth Quarter........... 36.69 30.22
- ------------------------------------------------------------------------------------------------
ANNUAL DIVIDENDS DECLARED $1.00 Annual Dividends Declared $ .92
================================================================================================
</TABLE>
61
<PAGE> 36
GATX Corporation and Subsidiaries
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE DATA/
YEAR ENDED OR AT DECEMBER 31 1998 1997(A) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Gross Income ............................................ $ 1,763.1 $ 1,701.9 $ 1,414.4 $ 1,246.4 $ 1,155.0
Costs and Expenses ...................................... 1,600.5 1,789.2 1,285.7 1,129.4 1,037.2
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes and Share of
Affiliates' Earnings ................................... 162.6 (87.3) 128.7 117.0 117.8
Income Taxes (Benefit) .................................. 74.3 (5.5) 54.4 47.6 48.8
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Share of Affiliates' Earnings ...... 88.3 (81.8) 74.3 69.4 69.0
Share of Affiliates' Earnings ........................... 43.6 30.9 28.4 31.4 22.5
- ---------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) ....................................... $ 131.9 $ (50.9) $ 102.7 $ 100.8 $ 91.5
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (B)
Net Income (Loss) Applicable to Common Stock,
as Adjusted ........................................... $ 131.8 $ (57.6) $ 89.5 $ 87.6 $ 78.2
Per Share of Common Stock and Common Stock Equivalents:
Net Income (Loss), Basic ................................ $ 2.68 $ (1.28) $ 2.22 $ 2.19 $ 1.97
Shares Used in Computation (in thousands) ............. 49,178 45,084 40,379 40,005 39,685
Per Share Assuming Conversion, Except in 1997,
of All Outstanding Preferred Stock:
Net Income (Loss), Diluted .............................. $ 2.62 $ (1.28) $ 2.10 $ 2.07 $ 1.89
Shares Used in Computation (in thousands) ............. 50,426 45,084 48,924 48,731 48,331
Dividends Declared Per Share of Common Stock ............ $ 1.00 $ .92 $ .86 $ .80 $ .75
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION
Total Assets ............................................ $ 4,939.3 $ 4,947.8 $ 4,750.2 $ 4,042.9 $ 3,650.7
Total Long-term Debt and Capital Lease Obligations ...... 2,821.7 2,841.7 2,664.1 2,092.5 1,805.1
Shareholders' Equity .................................... 732.9 655.4 774.9 717.8 662.4
Common Shareholders' Equity ............................. 732.1 654.7 609.2 551.8 496.1
Common Shareholders' Equity Per Share (B) ............... 14.84 13.36 14.79 13.44 12.15
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The 1997 restructuring charge was $224.8 million on a pre-tax basis, $162.8
million on an after-tax basis.
(B) Amounts have been restated to reflect the 2-for-1 stock split in June 1998.
62
<PAGE> 37
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
1997 COMPARED TO 1996
The following discussion analyzes GATX's comparative performance for the years
ended December 31, 1997 and 1996. This information should be read in conjunction
with the consoli-dated financial statements on pages 34, 36, 38 and, 43. The
discussion of comparative results of GATX's operations for the years ended
December 31, 1998 and 1997 is presented in the management discussion and
analysis and the financial data of business segments beginning on page 32.
GATX reported a net loss of $51 million or $1.28 per share, on a diluted basis,
for the year ended December 31, 1997 compared to net income of $103 million or
$2.10 per share for 1996.
During 1997, strategic decisions resulted in a $163 million after-tax
restructuring charge related to the Terminals and Pipelines and the Logistics
and Warehousing segments. The changed market environment which Terminals serves
required aggressive action to revitalize operations and includes the sale or
closure of the Staten Island terminal as well as seven terminals in the United
Kingdom. Other smaller facilities are also being evaluated or are in the process
of sale or closing. The after-tax restructuring charge attributable to Terminals
was $124 million. Logistics continued to implement its strategy of providing
integrated logistics solutions while reducing its role in the lower margin,
public warehousing business. To better reflect the economics of this strategic
direction, a $39 million after-tax charge was taken to write-down the carrying
value of goodwill relating to certain past warehousing acquisitions.
Before the effects of the $163 million after-tax charge, income was $112 million
or $2.25 per share on a diluted basis. These operating earnings reached a record
level with four of GATX's five subsidiaries achieving record results. Based on
the $112 million of total earnings, GATX achieved a return on equity of 14.0%,
up slightly from 13.8% in 1996.
RAILCAR LEASING AND MANAGEMENT General American's gross income of $477 million
increased by $49 million from 1996. The full year effect of the mid-1996
acquisition of the remaining 55% interest in CGTX accounted for $28 million of
the revenue increase with the balance attributable to a larger U.S. fleet and
improved rental rates. Prior to GATX acquiring the remaining interest, CGTX had
been accounted for as an affiliate. Railcar additions continued to be strong in
1997 with 4,800 cars added to the North American fleet, reaching a total of
77,700 cars on lease. With a total fleet of 81,100 cars, utilization ended the
year at 96%, up from 95% at the end of 1996. In addition to the North American
fleet, during 1997 General American purchased a 40% interest in Kesselwaggon
Vermietgesellschaft mbH (KVG), a German and Austrian-based tank car and
specialty railcar leasing company.
Record net income of $63 million increased by 11% over 1996 reflecting the
higher revenues and the full year impact of CGTX, partially offset by higher
repair costs and other operating and asset ownership expenses. Operating margins
improved by 14% as the growth in revenues exceeded the increase in fleet repair
costs and SG&A expenses.
Repair costs increased 7% due to the larger fleet size but decreased as a
percentage of revenue from 1996 due in part to the mix of cars and the types of
repairs completed. Throughput days, the time it takes a railcar to be repaired
through the General American repair network, remained at the 1996 average of 32
days. Asset ownership costs, consisting of operating lease rents, depreciation,
and interest expense, increased as a result of the growing fleet. General
American's share of earnings of affiliates declined from 1996 due to the
aforementioned change in accounting for CGTX.
63
<PAGE> 38
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
1997 COMPARED TO 1996
FINANCIAL SERVICES Gross income of $584 million for 1997 increased sharply from
1996 driven by higher technology equipment sales, lease income, and gains on
sale of assets. Of the $247 million or 73% overall increase from last year, $171
million was attributable to technology equipment sales. A full year of
technology equipment sales was recorded in 1997 whereas 1996 included only two
months. Lease income grew by $50 million, in large part due to a growing
technology leasing portfolio. Gains from asset remarketing in 1997 were at a
record level of $69 million, or $33 million more than last year. Because the
timing of such sales is dependent on changing market conditions, such gains do
not occur evenly from period to period.
Net income for 1997 was a record $54 million, a 17% improvement over last year's
results, with asset remarketing gains on sale of assets generating much of the
increase. Technology sales and leasing revenues were substantially offset by
asset ownership and human resource costs necessary to grow these businesses.
Record investment volume of $866 million, including over $200 million for the
technology leasing portfolio, led to depreciation expense increasing by $36
million and interest expense increasing by $11 million. Included in the
investment volume was the $368 million Pitney Bowes transaction, the largest in
GATX Capital's history. SG&A, which for the first time in 1997 included a full
year of results from the equipment sales sector, also increased due to higher
incentive compensation, transaction costs, and administrative expenses.
The provision for possible losses of $11 million decreased $2 million from 1996.
The allowance for possible losses increased to $122 million, representing 5.8%
of net investments, as compared to 6.6% at the end of last year.
The share of affiliates' earnings increased by $3 million to $17 million despite
the technology equipment business no longer being accounted for as a joint
venture for 1997. During 1997, Capital recorded affiliate earnings from three
new joint ventures, including two aircraft partnerships and the newly-formed
joint venture with Pitney Bowes. Affiliate earnings also increased at Locomotive
Leasing Partners, a joint venture established in 1996 with Electro-Motive
Division of General Motors.
Capital continued to manage and change its portfolio mix during 1997, with
aircraft now representing a proportionally smaller part of total assets while
the rail and technology sectors grew. Strategic aircraft sales, the Pitney Bowes
transaction (primarily rail assets), and substantial technology leasing
investment volume were the drivers of the change in asset concentrations.
TERMINALS AND PIPELINES Terminals' gross income for 1997 of $293 million was 2%
less than 1996 primarily due to the continued softness in both the domestic and
international petroleum markets. In general, the petroleum market was
characterized by competitive pricing pressures as refineries continued to
produce on a just-in-time basis thereby reducing the demand for storage. Gross
income related to services provided to the chemical market remained steady with
1996 while pipeline revenues improved slightly.
While throughput of petroleum products remained strong, rates further declined
from the 1996 levels. Throughput for 1997, defined as barrels delivered to
customers, of 639 million barrels at all wholly-owned locations remained steady
with 1996. Average storage utilization for the year was 91%, an improvement of
5% over 1996.
Terminals' net loss for 1997 was $116 million, including the effects of a $124
million after-tax restructuring charge. On an operating basis, Terminals' 1997
income of $8 million declined from the prior year's $13 million. The difficult
petroleum market conditions resulted in a 4% decrease in
64
<PAGE> 39
GATX Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
1997 COMPARED TO 1996 (CONTINUED)
operating margin. Overall operating costs and SG&A expenses decreased by 1% from
1996. Fixed asset ownership costs, which include interest and depreciation,
increased to 38% of revenue from 35% primarily due to the full year impact of
significant facility and infrastructure investments made in 1996. The share of
affiliates' earnings of $13 million increased by $1 million from 1996 reflecting
improved results primarily from European chemical markets. Asian results
approximated the prior year, with improvement in the chemical market offset by
foreign exchange rate variances.
During the fourth quarter of 1997, Terminals recorded an after-tax provision of
$124 million reflecting the results of a strategic review. Initial steps were
taken to sell or close certain locations including the Staten Island terminal
and seven storage facilities which make up GATX Terminals Limited in the United
Kingdom. Additionally, adjustments were made to the carrying cost of certain
other locations where conditions indicated that asset values were impaired.
Throughput and utilization for the facilities not designated for sale or closure
were 560 million barrels and 93%, respectively in 1997.
LOGISTICS AND WAREHOUSING Logistics' gross income of $257 million decreased 4%
due to the impact of lost business and slower production periods by certain
customers. New customers and increased business with existing customers somewhat
offset this decrease. Total warehouse capacity at year end of 21.4 million
square feet was in-line with 1996. Space utilization of 95% improved by 4% from
last year.
Logistics' net loss for 1997 was $37 million, including the effects of a $39
million after-tax charge related to the write-down of goodwill relating to
certain past acquisitions involved in public warehousing to better reflect the
economics of that sector of the industry. On an operating basis, Logistics' 1997
income of $1.6 million grew from the prior year's $.9 million. Operating margins
for 1997 improved to 10.0% from 9.6% in 1996 due to replacing some of the lost
public warehousing business with more profitable contract logistics business,
productivity improvements, and reduced empty space.
GREAT LAKES SHIPPING Gross income in 1997 was $91 million, a 7% improvement from
1996 due to increased tonnage carried and residual sharing fees earned by
partnering with GATX Capital in a third-party vessel financing and remarketing.
Cargo carried in 1997 totaled 26.4 million tons, a 7% increase from the 24.6
million tons carried in 1996 primarily from coal cargoes. Strong customer
demand, favorable weather conditions, and high water levels all contributed to
the solid performance.
Record income of $7.9 million increased by $2.5 million or 46% from 1996. The
residual sharing fees contributed $1.3 million with the balance primarily due to
the margin on the increased tonnage carried. Contribution margin per ton was 4%
greater than the prior year due to a change in mix of commodities carried as
well as operating efficiencies.
ASC carried an estimated 22% of the total U.S. flag Great Lakes tonnage, similar
to 1996. U.S. flag tonnage was 118 million tons, an increase of 8 million tons
from 1996. Iron ore cargoes represented 43% of ASC's tonnage, 7% less than the
prior year. Domestic raw steel production was approximately 90% in 1997, up 2%
from 1996. Coal cargoes represented 24% of ASC's tonnage, up from 21% as a
result of new business.
CORPORATE AND OTHER Corporate and Other net expense of $21 million increased by
$2 million from 1996 primarily due to the reversal in 1996 of a legal reserve
following the successful defense of litigation against GATX.
65
<PAGE> 40
GATX Corporation and Subsidiaries
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GATX LOCATION OF OPERATIONS HEADQUARTERS MINI SERVICE CENTERS Altamira, Mexico
GENERAL Chicago, Illinois Muscle Shoals, Alabama Guaymas, Mexico
AMERICAN White Springs, Florida Tamarinda, Mexico
TRANSPORTATION BUSINESS OFFICES Terre Haute, Indiana Edmonton, Alberta
CORPORATION Valencia, California Plaquemine, Louisiana Red Deer, Alberta
Atlanta, Georgia Midland, Michigan Vancouver, British Columbia
Chicago, Illinois Cincinnati, Ohio Sarnia, Ontario
Hackensack, New Jersey Masury, Ohio Montreal, Quebec
Philadelphia, Pennsylvania Catoosa, Oklahoma Moose Jaw, Saskatchewan
Pittsburgh, Pennsylvania Copper Hill, Tennessee
Houston, Texas Freeport, Texas AFFILIATES
Mexico City, Mexico Buenos Aires, Argentina
Calgary, Alberta MOBILE SERVICE UNITS Vienna, Austria
Toronto, Ontario Mobile, Alabama Hamburg, Germany
Montreal, Quebec Colton, California Zug, Switzerland
Macon, Georgia
MAJOR SERVICE CENTERS East Chicago, Indiana
Colton, California Geismar, Louisiana
Waycross, Georgia Norco, Louisiana
East Chicago, Indiana Carteret, New Jersey
Hearne, Texas Las Cruces, New Mexico
Tierra Blanca, Mexico Albany, New York
Red Deer, Alberta Galena Park, Texas
Montreal, Quebec Olympia, Washington
Moose Jaw, Saskatchewan
- ------------------------------------------------------------------------------------------------------------------------------------
GATX HEADQUARTERS Eden Prairie, Minnesota AFFILIATES
CAPITAL San Francisco, California Sydney, Australia Sydney, Australia
CORPORATION Toronto, Canada San Francisco, California
OFFICES Blagnac, France LaGrange, Illinois
Burbank, California Frankfurt, Germany Toronto, Ontario
Tampa, Florida Singapore, Republic of Singapore Zug, Switzerland
Chicago, Illinois Tokyo, Japan Elstree, United Kingdom
Woking, United Kingdom
- ------------------------------------------------------------------------------------------------------------------------------------
GATX HEADQUARTERS PIPELINES Kobe, Japan
TERMINALS Chicago, Illinois Yokohama, Japan
CORPORATION CALNEV PIPE LINE Kertih, Malaysia
TERMINALS Adelanto, California Jurong Town, Singapore
Carson, California Barstow, California Pulau Busing, Singapore
Richmond, California Colton, California Barcelona, Spain
San Pedro, California Las Vegas, Nevada Bilboa, Spain
Orlando, Florida Tarragona, Spain
Tampa, Florida CENTRAL FLORIDA PIPELINE Valencia, Spain
Argo, Illinois Orlando, Florida Seal Sands, United Kingdom
Carteret, New Jersey Tampa, Florida
Paulsboro, New Jersey PIPELINE AFFILIATE
Portland, Oregon (2) MANCHESTER JET LINE
Philadelphia, Pennsylvania Manchester, United Kingdom OLYMPIC PIPELINE
Galena Park, Texas Renton, Washington
Pasadena, Texas TERMINAL AFFILIATES
Seattle, Washington Antwerpen/Lillo, Belgium
Altamira, Mexico Lanshan, China
Kawasaki, Japan
- -----------------------------------------------------------------------------------------------------------------------------------
GATX HEADQUARTERS Normal, Illinois Westerville, Ohio
LOGISTICS, Jacksonville, Florida Richmond, Indiana Oklahoma City, Oklahoma
INC. Indianapolis, Indiana Bedford, Pennsylvania
LOCATIONS Shreveport, Louisiana Arlington, Texas
Little Rock, Arkansas Elkridge, Maryland Carrolton, Texas
Bell, California Coloma, Michigan El Paso, Texas
Industry, California Grand Rapids, Michigan Fort Worth, Texas
Mira Loma, California Kalamazoo, Michigan Grand Prairie, Texas
Ontario, California Bloomington, Minnesota Clearfield, Utah
Stockton, California Delisle, Mississippi Chesapeake, Virginia
Danbury, Connecticut Sardis, Mississippi Seattle, Washington
Jacksonville, Florida Greensboro, North Carolina Racine, Wisconsin
Atlanta, Georgia Winston-Salem, North Carolina Toronto, Canada
Dacula, Georgia New York, New York Tepotzotlan, Mexico
Bedford Park, Illinois Syracuse, New York Puerto Rico
Bolingbrook, Illinois Akron, Ohio
Chicago, Illinois Obetz, Ohio AFFILIATE
Hodgkins, Illinois Santiago, Chile
- ------------------------------------------------------------------------------------------------------------------------------------
AMERICAN STEAMSHIP HEADQUARTERS VESSELS M/V Charles E. Wilson
COMPANY Williamsville, New York M/V Indiana Harbor M/V Adam E. Cornelius
M/V Walter J. McCarthy, Jr. M/V American Republic
REGIONAL OFFICE M/V St. Clair M/V Buffalo
Toledo, Ohio M/V American Mariner M/V Sam Laud
M/V H. Lee White Str. John J. Boland
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE> 41
GATX Corporation and Subsidiaries
GATX OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
GATX OFFICERS GATX BOARD OF DIRECTORS GATX SUBSIDIARIES
<S> <C> <C>
RONALD H. ZECH JAMES M. DENNY(1,2) GENERAL AMERICAN
Chairman, President and Managing Director, William Blair TRANSPORTATION CORPORATION
Chief Executive Officer Capital Partners, LLC D. Ward Fuller, President
DAVID M. EDWARDS RICHARD M. FAIRBANKS(1,4) GATX CAPITAL CORPORATION
Senior Vice President and Managing Director of Jesse V. Crews, President
Chief Financial Officer Domestic & International Issues,
Center for Strategic & GATX TERMINALS CORPORATION
DAVID B. ANDERSON International Studies Anthony J. Andrukaitis, President
Vice President,
Corporate Development, WILLIAM C. FOOTE(3,4) GATX LOGISTICS, INC.
General Counsel and Chairman and Chief Executive Joseph A. Nicosia, President
Secretary Officer, USG Corporation
AMERICAN STEAMSHIP COMPANY
WILLIAM L. CHAMBERS DEBORAH M. FRETZ(3,4) Ned A. Smith, President
Vice President, Senior Vice President,
Human Resources Lubricants and Logistics, GATX LIQUID LOGISTICS, INC.
Sun Company, Inc. Stephen H. Fraser,
GAIL L. DUDDY Managing Director
Vice President, RICHARD A. GIESEN(2,3)
Compensation, Benefits, Chairman and Chief Executive
and Corporate Human Officer, Continental
Resources Glass & Plastic, Inc.
BRIAN A. KENNEY MILES L. MARSH(1,4)
Vice President-Finance Chairman, President and
Chief Executive Officer,
RALPH L. O'HARA Fort James Corporation
Controller
CHARLES MARSHALL(2,3)
CLIFFORD J. PORZENHEIM Retired: Former Vice Chairman
Vice President-Corporate Strategy of the Board, American Telephone
and Telegraph Company
THOMAS W. REEDY
Treasurer MICHAEL E. MURPHY(1,2)
Retired: Former Vice Chairman
and Chief Administrative Officer,
Sara Lee Corporation
JOHN W. ROGERS, JR.(4)
President, Ariel Capital
Management, Inc.
RONALD H. ZECH
Chairman, President and
Chief Executive Officer,
GATX Corporation
(1)Member, Audit Committee
(2)Member, Compensation Committee
(3)Member, Nominating Committee
(4)Member, Retirement Funds
Review Committee
</TABLE>
67
<PAGE> 42
NOTES
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68
<PAGE> 43
GATX Corporation and Subsidiaries
GATX CORPORATE INFORMATION
ANNUAL MEETING
Friday, April 23, 1999, 9:00 a.m.
GATX Corporation
500 West Monroe Street
Chicago, Illinois 60661-3676
FINANCIAL INFORMATION
AND PRESS RELEASES:
A copy of the company's annual report on Form 10-K for 1998 and selected other
information are available without charge.
Corporate information and press releases may
be found at HTTP://WWW.GATX.COM. A variety of current financial information,
historical financial information, press releases and photographs are available
at this site.
GATX press releases may be obtained by automated PR Newswire Company News
On-Call's automated fax service at (800) 758-5804. The company identification
number for GATX is 105121.
INQUIRIES
Inquiries regarding dividend checks, the dividend reinvestment plan, stock
certificates, replacement of lost certificates, address changes, account
consolidation, transfer procedures and year-end tax information should be
addressed to GATX Corporation's Transfer Agent and Registrar:
Chase Mellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
Telephone: (800) 851-9677
Internet: http://www.chasemellon.com
INFORMATION RELATING TO SHAREHOLDER
OWNERSHIP, DIVIDEND PAYMENTS,
OR SHARE TRANSFERS:
Lisa M. Ibarra, Assistant Corporate Secretary
Telephone: (312) 621-6603
Fax: (312) 621-6647
Email: [email protected]
69
<PAGE> 44
GATX Corporation welcomes and encourages questions and comments from its
shareholders, potential investors, financial professionals and the public at
large. To better serve interested parties, the following GATX personnel may be
contacted by telephone, fax and/or writing.
TO REQUEST PUBLISHED FINANCIAL INFORMATION AND FINANCIAL REPORTS, CONTACT:
GATX CORPORATION
Investor Relations Department
500 West Monroe Street
Chicago, Illinois 60661-3676
TELEPHONE: (800) 428-8161
Automated request line for materials:
(312) 621-6300
INDIVIDUAL INVESTORS INQUIRIES:
Janet Bower, Investor Relations Analyst
Telephone: (312) 621-4297
Fax: (312) 621-6698
Email: [email protected]
ANALYSTS, INSTITUTIONAL SHAREHOLDERS AND FINANCIAL COMMUNITY PROFESSIONALS:
Robert C. Lyons, Director of Investor Relations
Telephone: (312) 621-6633
Email: [email protected]
Aaron H. Hoffman, Manager Investor and
Public Relations
Telephone: (312) 621-6493
Email: [email protected]
Fax: (312) 621-6698
QUESTIONS REGARDING SALES, SERVICE OR
LEASE INFORMATION:
General American Transportation Corporation
(312) 621-6564
GATX Capital Corporation- (415) 955-3200
GATX Terminals Corporation- (312) 621-8032
GATX Logistics, Inc.- (904) 396-2517
American Steamship Company- (716) 635-0222
GATX Liquid Logistics, Inc.- (312) 621-6200
INDEPENDENT AUDITORS
Ernst & Young LLP
70
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of subsidiaries included in GATX's consolidated
financial statements (excluding a number of subsidiaries which, considered in
the aggregate, would not constitute a significant subsidiary), and the state of
incorporation of each:
General American Transportation Corporation (New York) - includes 5
domestic subsidiaries, 4 foreign subsidiaries and interests in 2
foreign affiliates, Business Segment - Railcar Leasing and Management
GATX Financial Services, Inc. (Delaware) - 71 domestic subsidiaries (which
includes GATX Capital Corporation), 18 foreign subsidiaries, interests
in 6 domestic affiliates and 13 foreign affiliates, Business Segment -
Financial Services
GATX Terminals Corporation (Delaware) - 5 domestic subsidiaries, 3 foreign
subsidiaries, an interest in 1 domestic affiliate and 13 foreign
affiliates, Business Segment - Terminals and Pipelines
GATX Logistics, Inc. (Florida) - 8 domestic subsidiaries and 2 foreign
subsidiaries and interests in 1 foreign affiliate and 1 domestic
affiliate, Business Segment - Logistics and Warehousing.
American Steamship Company (New York) - 13 domestic subsidiaries, Business
Segment - Great Lakes Shipping
25
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following: (i) Registration
Statement No. 2-92404 on Form S-8, filed July 26, 1984; (ii) Registration
Statement No. 2-96593 on Form S-8, filed March 22, 1985; (iii) Registration
Statement No. 33-38790 on Form S-8 filed February 1, 1991; (iv) Registration
Statement No. 33-41007 on Form S-8 filed June 7, 1991; (v) Registration
Statement No. 33-61183 on Form S-8 filed July 20, 1995; (vi) Registration
Statement No. 33-06315 on Form S-8 filed June 19, 1996; and (vii) Registration
Statement No. 33-43113 on Form S-8 filed December 23, 1997 of GATX Corporation,
of our report dated January 26, 1999 with respect to the consolidated financial
statements and schedules of GATX Corporation included and/or incorporated by
reference in the Annual Report on Form 10-K for the year ended December 31,
1998.
ERNST & YOUNG LLP
March 16, 1999
Chicago, Illinois
26
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned director of GATX Corporation, a New York corporation,
does hereby constitute and appoint Ronald H. Zech, David B. Anderson and David
M. Edwards, or any of them, attorneys and agents of the undersigned, with full
power and authority to sign in such director's name, and on behalf of GATX
Corporation, the 1998 Annual Report on Form 10-K under the Securities Exchange
Act of 1934, together with any amendments thereto, hereby ratifying and
confirming all that said attorneys and agents and each of them may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal.
/s/ Ronald H. Zech
- -------------------
Director
Date: March 1, 1999
- -------------------
<PAGE> 2
POWER OF ATTORNEY
The undersigned director of GATX Corporation, a New York corporation,
does hereby constitute and appoint Ronald H. Zech, David B. Anderson and David
M. Edwards, or any of them, attorneys and agents of the undersigned, with full
power and authority to sign in such director's name, and on behalf of GATX
Corporation, the 1998 Annual Report on Form 10-K under the Securities Exchange
Act of 1934, together with any amendments thereto, hereby ratifying and
confirming all that said attorneys and agents and each of them may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal.
/s/ James M. Denney
- -------------------
Director
Date: March 4, 1999
- -------------------
<PAGE> 3
POWER OF ATTORNEY
The undersigned director of GATX Corporation, a New York corporation,
does hereby constitute and appoint Ronald H. Zech, David B. Anderson and David
M. Edwards, or any of them, attorneys and agents of the undersigned, with full
power and authority to sign in such director's name, and on behalf of GATX
Corporation, the 1998 Annual Report on Form 10-K under the Securities Exchange
Act of 1934, together with any amendments thereto, hereby ratifying and
confirming all that said attorneys and agents and each of them may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal.
/s/ Richard Fairbanks
- ---------------------
Director
Date: March 2, 1999
-------------------
<PAGE> 4
POWER OF ATTORNEY
The undersigned director of GATX Corporation, a New York corporation,
does hereby constitute and appoint Ronald H. Zech, David B. Anderson and David
M. Edwards, or any of them, attorneys and agents of the undersigned, with full
power and authority to sign in such director's name, and on behalf of GATX
Corporation, the 1998 Annual Report on Form 10-K under the Securities Exchange
Act of 1934, together with any amendments thereto, hereby ratifying and
confirming all that said attorneys and agents and each of them may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal.
/s/ William C. Foote
- -----------------------
Director
Date: March 2, 1999
- -----------------------
<PAGE> 5
POWER OF ATTORNEY
The undersigned director of GATX Corporation, a New York corporation,
does hereby constitute and appoint Ronald H. Zech, David B. Anderson and David
M. Edwards, or any of them, attorneys and agents of the undersigned, with full
power and authority to sign in such director's name, and on behalf of GATX
Corporation, the 1998 Annual Report on Form 10-K under the Securities Exchange
Act of 1934, together with any amendments thereto, hereby ratifying and
confirming all that said attorneys and agents and each of them may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal.
/s/ Deborah M. Fretz
- -------------------------
Director
Date: March 2, 1999
-------------------
<PAGE> 6
POWER OF ATTORNEY
The undersigned director of GATX Corporation, a New York corporation,
does hereby constitute and appoint Ronald H. Zech, David B. Anderson and David
M. Edwards, or any of them, attorneys and agents of the undersigned, with full
power and authority to sign in such director's name, and on behalf of GATX
Corporation, the 1998 Annual Report on Form 10-K under the Securities Exchange
Act of 1934, together with any amendments thereto, hereby ratifying and
confirming all that said attorneys and agents and each of them may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal.
/s/ Richard A. Giesen
- ------------------------
Director
Date: March 2, 1999
-------------------
<PAGE> 7
POWER OF ATTORNEY
The undersigned director of GATX Corporation, a New York corporation,
does hereby constitute and appoint Ronald H. Zech, David B. Anderson and David
M. Edwards, or any of them, attorneys and agents of the undersigned, with full
power and authority to sign in such director's name, and on behalf of GATX
Corporation, the 1998 Annual Report on Form 10-K under the Securities Exchange
Act of 1934, together with any amendments thereto, hereby ratifying and
confirming all that said attorneys and agents and each of them may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal.
/s/ Miles L. Marsh
- -------------------------
Director
Date: March 1, 1999
--------------------
<PAGE> 8
POWER OF ATTORNEY
The undersigned director of GATX Corporation, a New York corporation,
does hereby constitute and appoint Ronald H. Zech, David B. Anderson and David
M. Edwards, or any of them, attorneys and agents of the undersigned, with full
power and authority to sign in such director's name, and on behalf of GATX
Corporation, the 1998 Annual Report on Form 10-K under the Securities Exchange
Act of 1934, together with any amendments thereto, hereby ratifying and
confirming all that said attorneys and agents and each of them may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal.
/s/ Charles Marshall
- -------------------------
Director
Date: March 1, 1999
--------------------
<PAGE> 9
POWER OF ATTORNEY
The undersigned director of GATX Corporation, a New York corporation,
does hereby constitute and appoint Ronald H. Zech, David B. Anderson and David
M. Edwards, or any of them, attorneys and agents of the undersigned, with full
power and authority to sign in such director's name, and on behalf of GATX
Corporation, the 1998 Annual Report on Form 10-K under the Securities Exchange
Act of 1934, together with any amendments thereto, hereby ratifying and
confirming all that said attorneys and agents and each of them may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal.
/s/ Michael E. Murphy
- -------------------------
Director
Date: March 1, 1999
---------------------
<PAGE> 10
POWER OF ATTORNEY
The undersigned director of GATX Corporation, a New York corporation,
does hereby constitute and appoint Ronald H. Zech, David B. Anderson and David
M. Edwards, or any of them, attorneys and agents of the undersigned, with full
power and authority to sign in such director's name, and on behalf of GATX
Corporation, the 1998 Annual Report on Form 10-K under the Securities Exchange
Act of 1934, together with any amendments thereto, hereby ratifying and
confirming all that said attorneys and agents and each of them may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal.
/s/ John W. Rogers, Jr.
- -------------------------
Director
Date: March 1, 1999
--------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED INCOME STATEMENT OF GATX AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 95
<SECURITIES> 0
<RECEIVABLES> 1074<F1>
<ALLOWANCES> 136
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 4710
<DEPRECIATION> 1920
<TOTAL-ASSETS> 4939
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 2822<F3>
0
0
<COMMON> 34
<OTHER-SE> 699
<TOTAL-LIABILITY-AND-EQUITY> 4939
<SALES> 0
<TOTAL-REVENUES> 1763
<CGS> 0
<TOTAL-COSTS> 838<F4>
<OTHER-EXPENSES> 268<F5>
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 235
<INCOME-PRETAX> 163<F6>
<INCOME-TAX> 74
<INCOME-CONTINUING> 132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.62
<FN>
<F1>RECEIVABLES CONSIST OF THREE COMPONENTS: TRADE ACCOUNTS OF 156 MILLION,
FINANCE LEASES OF 676 MILLION, AND SECURED LOANS OF 242 MILLION.
<F2>NOT APPLICABLE BECAUSE GATX HAS AN UNCLASSIFIED BLANCE SHEET.
<F3>BONDS CONSIST OF THREE COMPONENTS: RECOURSE LONG-TERM DEBT OF 2171 MILLION,
NONRECOURSE LONG-TERM DEBT OF 452 MILLION AND CAPITAL LEASE OBLIGATIONS OF 199
MILLION.
<F4>THIS VALUE REPRESENTS OPERATING EXPENSES ON THE CONSOLIDATED STATEMENTS OF
OPERATIONS.
<F5>THIS VALUE REPRESENTS THE PROVISION FOR DEPRECIATION AND AMORTIZATION ON THE
CONSOLIDATED INCOME STATEMENT.
<F6>THIS VALUE REPRESENTS INCOME BEFORE INCOME TAXES AND SHARE OF AFFILIATES'
EARNINGS.
</FN>
</TABLE>
