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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2328
GATX Corporation
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:
Name of each exchange on
Title of each class or series which registered
- ---------------------------------------------- ------------------------
Common Stock New York Stock Exchange
Chicago 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
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.
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 10, 2000, 48,199,074 common shares were outstanding, and
the aggregate market value of the common shares (based upon the March 14, 2000,
closing price of these shares on the New York Stock Exchange) of GATX
Corporation held by nonaffiliates was approximately $1,500.2 million.
Documents Incorporated by Reference
Portions of the GATX Annual Report to Shareholders for the year ended
December 31, 1999, are incorporated by reference into Parts I and II. Portions
of GATX's proxy statement dated March 17, 2000, are incorporated by reference
into Part III.
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PART I
Item 1. Business
GATX Corporation is a holding company whose subsidiaries engage in the leasing
and management of railroad tank cars and other specialized railcars; arrange and
service the financing of equipment and other capital assets; and provide
logistics and supply chain services related to chemicals, petroleum, and dry
goods. 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, 1999 on pages 29 through 33,
which is incorporated herein by reference (page references are to the Annual
Report to Shareholders).
Industry Segments
GATX Rail
GATX Rail ("Rail"), formerly General American Transportation Corporation, is
headquartered in Chicago, Illinois. Rail is principally engaged in leasing
specialized railcars, primarily tank cars, under full service leases. As of
December 31, 1999, its North American fleet consisted of approximately 87,800
railcars, comprised of 67,900 tank cars and 19,900 specialized freight cars,
including conventional and Airslide(TM) covered hopper cars. In addition to
76,000 railcars in the United States, Rail has 9,200 railcars in its Canadian
fleet and 2,600 railcars in its Mexican fleet. The utilization rate of Rail's
North American railcar fleet as of December 31, 1999, was approximately 95%.
Rail's railcars have a depreciable life of 20 to 33 years and an average age of
approximately 16 years.
In addition to the North American fleet, Rail's investments in affiliated
companies result in ownership interests in two European fleets. Rail owns a 46%
interest in KVG Kesselwagen Vermietgesellschaft mbH, a German and Austrian-based
tank car and specialty railcar leasing company, and an 18.8% interest in AAE
Cargo, headquartered in Switzerland.
Rail's customers use its railcars to ship over 700 different commodities,
primarily chemicals, petroleum, and food products. For 1999, approximately 47%
of railcar leasing revenue was attributable to shipments of chemical products,
31% to food and other products, and 22% to petroleum products. Rail leases
railcars to over 700 customers, including major chemical, oil, food and
agricultural companies. No single customer accounts for more than 3% of total
railcar leasing revenue.
Rail 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. Rail purchases most of its new railcars from Trinity Industries,
Inc., a Dallas-based metal products manufacturer. Under its full service leases,
Rail maintains and services its railcars, pays ad valorem taxes, and provides
many ancillary services. Through its Internet website, Rail provides customers
with timely analysis, performance statistics, and mechanical record information
to enhance and maximize the utilization of their leased railcars. Rail also
maintains a network of major service centers consisting of four domestic, four
Canadian and one Mexican facility. To supplement the nine major service centers,
Rail utilizes a fleet of mobile trucks and also utilizes independent third-party
repair shops.
The full-service railcar leasing industry is comprised of Rail, Union Tank Car
Company, General Electric Railcar Services Corporation, and many smaller
companies. As of the end of 1999, Rail had 23% of the 266,000 tank cars owned
and leased in the United States. Principal competitive factors include price,
service and availability.
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Financial Services
Financial Services represents GATX Capital Corporation and its subsidiaries and
affiliates, which arrange and service the financing of equipment and other
capital assets on a worldwide basis, and American Steamship Company, which
operates self-unloading vessels on the Great Lakes. Headquartered in San
Francisco, California, Financial Services provides financing primarily to the
aircraft, rail, technology and marine industries. These financings, which are
held within Financial Services' 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, Financial Services receives fees at the time the
transaction is completed, an asset is remarketed, and/or on an ongoing basis. In
the second quarter of 1999, Financial Services sold Centron DPL, Inc. which is
consistent with its strategy to exit the value-added reselling business.
Financial Services primarily competes with captive leasing companies, leasing
subsidiaries of commercial banks, independent leasing companies, lease brokers,
investment bankers, financing arms of equipment manufacturers, and other Great
Lakes commercial fleets. No single customer accounts for more than 5% of
Financial Services' revenues. In addition to its San Francisco home office,
Financial Services has 5 domestic and 11 foreign offices.
Integrated Solutions Group
The Integrated Solutions Group ("ISG") provides logistics and supply chain
services related to chemicals, petroleum, and dry goods. At its terminal
facilities and pipelines, chemical and petroleum products are stored, handled,
blended, and transferred at key points in the bulk liquid distribution chain.
Many of these facilities also are linked with major interstate pipelines. ISG
also has several smaller operating companies providing a variety of logistic
services to the bulk liquid chemical industry. Within the dry goods sector, ISG
is a major third-party provider of distribution and logistics support services
and warehousing facilities in the United States. Examples of services provided
are integrated logistics solutions, just-in-time delivery systems, warehousing,
packaging, sub-assembly, freight management, and returns management.
ISG is headquartered in Chicago, Illinois. Through its operating companies, ISG
owns and operates 15 terminal sites and 57 warehouse facilities throughout North
America and also holds interests in European, Asian, North American, and Latin
American facilities. Additionally, ISG owns or holds interests in four refined
pipeline systems.
ISG serves over 800 customers including major oil and chemical companies, larger
independent refiners, and a broad variety of manufacturing, e-commerce, and
distribution companies. No single customer accounts for more than 5% of ISG's
revenue.
Within the worldwide public petroleum and chemical terminaling industry,
Koninkliijke Vopak ("Vopak") is the largest in terms of capacity followed by
ISG. During 1999, the merger of two Dutch companies, PAKHOED N.V. and Van
Ommeren N.V formed Vopak. Additionally, smaller terminaling companies as well as
oil and chemical companies that have significant storage capacity compete with
ISG in a number of markets. ISG's pipelines compete with rail, trucks, and other
pipelines for movement of liquid petroleum products. In early 2000, ISG
announced that GATX Terminals Corporation ("Terminals") purchased Vopak's 50%
ownership in Gamatex N.V., located in Belgium, and Tankstore Ltd., located in
Singapore. The result gave Terminals 100% ownership in both Gamatex N.V. and
Tankstore Ltd. In turn, Terminals sold to Vopak its 50% ownership interest in
Tees Storage Company Ltd., a terminal facility in Middlesborough, England.
Within the dry goods warehousing, distribution, and logistics services sector,
ISG competes with in-house or private operations, other national operators,
multi-regional and local operators, major trucking companies, and providers of
specialized distribution services.
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Industries from which ISG derived 10% or more of its 1999 revenue include
petroleum (36%), food and grocery (19%), automotive (16%), and chemical (12%).
Trademarks, Patents and Research Activities
Patents, trademarks, licenses, and research and development activities are not
material to these businesses taken as a whole.
Seasonal Nature of Business
Marine shipping operations are seasonal due to the effects of winter weather
conditions on the Great Lakes. However, seasonality is not considered
significant to the operations of GATX and its subsidiaries taken as a whole.
Customer Base
GATX as a whole is not dependent upon a single customer or a few customers.
Employees
GATX and its subsidiaries have approximately 6,300 active employees, of whom 26%
are hourly employees covered by union contracts.
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 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
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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 1999 was $87 million and reflects
GATX's best estimate of the cost to remediate known environmental conditions.
Additions to the reserve were $12 million in each of 1999 and 1998. Expenditures
charged to the reserve amounted to $8 million and $9 million in 1999 and 1998,
respectively.
In 1999, GATX made capital expenditures of $8 million for environmental and
regulatory compliance compared to $5 million in 1998. 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 $11 million in 2000. GATX anticipates it
will make annual expenditures at approximately the same level over each of the
next three years.
Item 2. Properties
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, 1999 on page
60, GATX Locations of Operations (page reference is to the Annual Report to
Shareholders). The major portion of land for terminal operations is owned; the
balance, including some of its dock facilities, is leased. Most of the
warehouses operated by the warehousing and logistics operations are leased; the
others are managed for third parties.
Item 3. Legal Proceedings
GATX Capital Corporation ("Capital"), a subsidiary of GATX Corporation ("The
Company"), is a party to actions arising from the issuance by the Federal
Aviation Administration (the "FAA") in January 1996 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 modified from passenger to freighter configuration by
GATX/Airlog Company ("Airlog"), a California general partnership. A subsidiary
of Capital, GATX Aircraft Corporation, is a partner in Airlog. The modifications
were carried out between 1988 and 1994 by subcontractors of Airlog under
authority of Supplemental Type Certificates ("STCs") issued by the FAA in 1987
pursuant to a design approved by the FAA. In the AD, the FAA stated that the
STCs 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. C96-2494) with
respect to three Affected Aircraft seeking a declaration that neither Airlog nor
the Company 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 Affected Aircraft.
Evergreen alleges approximately $160 million in compensatory damages and also
seeks unspecified punitive damages.
On June 5, 1997, the Court ruled on Airlog's previously filed motion for partial
summary judgment against Evergreen. 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
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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 to proceed with its claim for breach of warranty under the
Modification Agreements and its claim of negligent misrepresentation.
On October 27, 1999, the Court issued its ruling on Evergreen's previously filed
motion for partial summary judgment regarding two Affected Aircraft. The Court
ruled: (i) the limitation on damages clause in the contracts under which the
Evergreen planes were converted which precludes consequential damages is not
unenforceable, (ii) the contracts included a warranty of the modification design
(iii) certain claims by Evergreen are not barred by the statute of limitations
and (iv) as to one airplane modification, which was guaranteed by Capital,
Capital can be held liable if any judgment were imposed against Airlog. The
Court also ruled that whether any warranty was breached is a triable issue of
fact.
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 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. The
AIA claim was recently assigned to Kalitta Air ("Kalitta Air"). Kalitta Air
alleges $480 million in compensatory damages, trebling of such damages pursuant
to 18 U.S.C. 1964, prejudgment interest and unspecified punitive damages.
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 unspecified punitive damages.
On February 25, 1998, The Bank of New York ("BNY") filed an action, as purported
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. BNY alleges approximately
$19 million in compensatory damages, prejudgment interest and unspecified
punitive damages.
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. GECC alleges approximately $100 million in
compensatory damages, trebling of such damages pursuant to 18 U.S.C. 1964,
prejudgment interest and unspecified punitive damages.
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
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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. In February
2000, Airlog stipulated to the dismissal of its fraudulent, negligent and
innocent misrepresentation and professional negligence causes of action against
Pemco Aeroplex, Inc.
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 August 27, 1999, the Court
dismissed Airlog's action against the United States. This dismissal was based on
the Court's determination that the governmental discretionary function exception
to the Federal Tort Claims Act is applicable to Airlog's claim. Airlog is
appealing that decision to the Circuit Court of Appeals for the Ninth Circuit.
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.
Actions with respect to nine of the ten Affected Aircraft have been consolidated
for trial in the Federal District Court for the Northern District of California.
On February 1, 2000, the judge assigned to these cases recused himself. The case
has been assigned to a new judge. As a result of this reassignment, the trial of
these cases, which had been set for April 3, 2000, has been removed from the
calendar.
While the results of any litigation are impossible to predict with certainty,
Capital believes that each of the foregoing claims brought against it is without
merit, and that Capital and Airlog have adequate defenses thereto.
GATX Rail Corporation ("GRC") and GATX Terminals Corporation ("Terminals"), each
subsidiaries of GATX, are two of the nine defendants named in In re New Orleans
Tank Car Leakage Fire Litigation, Civil Action No. 87-16374, Civil District
Court for the Parish of Orleans, State of Louisiana (the "Tank Car Litigation").
The litigation arises from the September 1987 leak of butadiene from a tank car
owned by GRC and the subsequent fire. The butadiene was loaded into the tank car
at a facility owned and operated by Terminals. Discovery taken to date has shown
the leak and fire did not cause any deaths or serious personal injuries, but did
result in an approximate thirty-six hour evacuation of persons in the effected
area.
The Tank Car Litigation was certified as a class action in 1993. A trial of the
compensatory damage claim of twenty selected plaintiffs and of the punitive
damage claims of the class was conducted in 1997. In September 1997, the jury
awarded approximately $1,900,000 plus interest as compensatory damages to the
twenty plaintiffs and $3.4 billion as punitive damages in favor of the class
including $190,000,000 against Terminals. GRC is not liable for punitive
damages. In July 1999, the Court conducted a trial on the compensatory claims of
an additional twenty plaintiffs; the jury awarded a total of $344,300 in
compensatory damages.
In October 1999, GRC, Terminals, three other defendants and the Plaintiffs'
Management Committee acting on behalf of the Class executed a settlement
agreement (the "Preliminary Settlement Agreement") which provides for the
release of any and all claims against the five defendants, including GRC or
Terminals arising out of the tank car incident, including all of the claims
asserted by the class. In November 1999, the Court gave preliminary approval to
the settlement and directed that notice of the
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proposed settlement be given to all class members and other interested persons.
The Court also ordered that a final hearing on the settlement will be conducted
on March 22, 2000, (the "Fairness Hearing"). A sixth defendant has entered into
a separate settlement agreement with the class.
At the Fairness Hearing, the Court will consider objections to the settlement
and determine whether the settlement is fair, adequate and reasonable to the
class. Should the settlement be approved, the Tank Car Litigation will be
dismissed with prejudice as to GRC, Terminals and the settling defendants; GRC
and Terminals will be released of any and all claims arising out of or relating
to the tank car incident including all claims of the class and of the class
members for compensatory and punitive damages; and GRC and Terminals will be
indemnified with respect to all such claims.
The Company believes that should the Preliminary Settlement Agreement be
approved, the amounts required to be paid by GRC and Terminals in connection
therewith would not be material to the Company's consolidated financial position
or results of operations. In the event the proposed settlement is not approved,
GRC and Terminals will aggressively defend any future trials and pursue
post-judgment review of the compensatory and punitive awards and, if necessary,
appeal of any final judgment.
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, management believes that damages, if
any, required to be paid by GATX and its subsidiaries in the discharge of such
liability could be material to the results of operations for a given quarter or
year but are not likely to be material to GATX's consolidated financial
position.
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Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
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
- ------------------------- ----------------------------------------------------- ------- -------
<S> <C> <C> <C>
Ronald H. Zech Chairman, President and Chief Executive Officer 1996 56
David M. Edwards Senior Vice President 1999 48
David B. Anderson Vice President, Corporate Development, General 1995 58
Counsel and Secretary
William L. Chambers Counsel to the Chief Executive Officer 1993 62
Gail L. Duddy Vice President, Human Resources 1999 47
Brian A. Kenney Vice President and Chief Financial Officer 1999 40
Ralph L. O'Hara Controller and Chief Accounting Officer 1986 55
Clifford J. Porzenheim Vice President, Corporate Strategy 1999 36
William J. Hasek Treasurer 1999 43
</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 Senior Vice President and Chief Financial Officer of GATX from
1994 to 1999. 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.
Ms. Duddy joined GATX in 1992 as Director of Compensation and in 1995 also
assumed responsibility for the benefits function. In 1997, Ms. Duddy was elected
Vice President, Compensation, Benefits and Corporate Human Resources. Mr. Kenney
was Vice President, Finance of GATX from 1998 to 1999, Vice President and
Treasurer from 1997 to 1998, and Treasurer from 1995 to 1996. 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. Hasek
was the Director of Financial Analysis and Budgeting from 1997 to 1999 and
Manager of Corporate Finance from 1995 to 1997.
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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, 1999, on page 55, 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, 1999, on pages 56 and 57, 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, 1999, the management's discussion and analysis of 1999
compared to 1998 on pages 23-25, 29, 31, and 33-36, the financial data of
business segments on pages 32 and 33, and the management's discussion and
analysis of 1998 compared to 1997 on pages 58 and 59, 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, 1999, the management's
discussion and analysis of 1999 compared to 1998 on page 34 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,
1999, which is incorporated herein by reference (page references are to the
Annual Report to Shareholders):
Consolidated Statements of Operations - Years Ended December 31, 1999,
1998 and 1997, on page 28.
Consolidated Balance Sheets - December 31, 1999 and 1998, on page 30.
Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997, on page 32.
Consolidated Statements of Changes in Shareholders' Equity - December
31, 1999, 1998 and 1997, on page 37.
Consolidated Statements of Comprehensive Income (Loss) - Years Ended
December 31, 1999, 1998 and 1997, on page 37.
Notes to Consolidated Financial Statements on pages 38 through 54.
Consolidated quarterly financial data is contained in Exhibit 13, GATX Annual
Report to Shareholders for the year ended December 31, 1999, on page 55, 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.
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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, 2000, 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, 2000, 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, 2000, 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.
(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, 1999, are filed in response to Item 8:
Consolidated Statements of Operations - Years Ended December 31,
1999, 1998 and 1997.
Consolidated Balance Sheets - December 31, 1999 and 1998.
Consolidated Statements of Cash Flows - Years Ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Changes in Shareholders' Equity -
December 31, 1999, 1998 and 1997.
Consolidated Statements of Comprehensive Income (Loss) - Years
Ended December 31, 1999, 1998 and 1997.
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 October 5, 1999, reporting an order
for aircraft by a joint venture in which an indirect
wholly owned subsidiary participates.
(c) Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Page
<S> <C> <C>
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. Third Amendment of
said Plan effective as of April 23, 1999, incorporated by
reference to GATX's Proxy Statement dated March 17, 1999.
Fourth Amendment of said Plan effective as of
December 1, 1999, submitted to the SEC on Form S-8, file
number 333-91865.
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 submitted to the SEC along
with the electronic transmission of this Annual Report on Form
10-K.
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,
1999, pages 21- 62 with respect to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1999, 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, 1999, file number
1-2328. Submitted to the SEC along with the electronic submission
of this Report on Form 10-K.
27.1 Financial Data Schedule for GATX Corporation for the fiscal year
ended December 31, 1999, file number 1-2328. Submitted to the SEC
along with the electronic submission of this Report on Form 10-K.
27.2 Restated Financial Data Schedule for GATX Corporation for the
year to date periods ended March 31, 1999, June 30, 1999,
September 30, 1999 and December 31, 1997
27.3 Restated Financial Data Schedule for GATX Corporation for the
year to date periods ended March 31, 1998, June 30, 1998,
September 30, 1998 and December 30, 1998.
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
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 17, 2000
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.
/s/ Ronald H. Zech
- -----------------------------------
Ronald H. Zech Chairman, President and
March 17, 2000 Chief Executive Officer
/s/ Brian A. Kenney
- -----------------------------------
Brian A. Kenney Vice President and
March 17, 2000 Chief Financial Officer
/s/ Ralph L. O'Hara
- -----------------------------------
Ralph L. O'Hara Controller and
March 17, 2000 Chief Accounting Officer
Rod F. Dammeyer Director By /s/ David B. Anderson
James M. Denny Director ----------------------------------
Richard Fairbanks Director David B. Anderson
William C. Foote Director (Attorney in Fact)
Deborah M. Fretz Director
Richard A. Giesen Director
Miles L. Marsh Director
Michael E. Murphy Director
John W. Rogers, Jr. Director
Date: March 17, 2000
15
<PAGE> 17
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, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements 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, 1999 and 1998, and the results of
their operations and cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. 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 25, 2000
Chicago, Illinois
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
---------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
GROSS INCOME $ 1.9 $ 3.2 $ 1.4
COSTS AND EXPENSES
Interest 28.2 28.3 29.4
Provision for depreciation 1.3 1.1 1.0
Selling, general and administrative 17.6 21.4 20.6
-------- -------- -------
47.1 50.8 51.0
-------- -------- -------
LOSS BEFORE INCOME TAXES AND SHARE OF
NET INCOME (LOSS) OF SUBSIDIARIES (45.2) (47.6) (49.6)
INCOME TAX BENEFIT (15.4) (16.4) (17.1)
-------- -------- -------
LOSS BEFORE SHARE OF NET INCOME (LOSS)
OF SUBSIDIARIES (29.8) (31.2) (32.5)
SHARE OF NET INCOME (LOSS) OF SUBSIDIARIES 181.1 163.1 (18.4)
-------- -------- -------
NET INCOME (LOSS) $ 151.3 $ 131.9 $ (50.9)
======== ======== =======
</TABLE>
Note: Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the 1999 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
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ (1.1) $ .2
OPERATING LEASE ASSETS AND FACILITIES 12.8 11.7
Less - Allowance for depreciation (6.3) (5.4)
-------- --------
6.5 6.3
INVESTMENT IN SUBSIDIARIES 1,326.8 1,216.6
OTHER ASSETS 14.0 13.7
-------- --------
$1,346.2 $1,236.8
======== ========
LIABILITIES, DEFERRED ITEMS AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 17.2 $ 10.7
DUE TO SUBSIDIARIES 489.4 483.1
OTHER DEFERRED ITEMS 3.6 10.1
-------- --------
TOTAL LIABILITIES AND DEFERRED ITEMS 510.2 503.9
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock 34.5 34.3
Additional capital 338.7 331.6
Reinvested earnings 543.0 446.0
Accumulated other comprehensive income (loss) 1.2 (32.2)
-------- --------
917.4 779.7
Less - Cost of shares in treasury (81.4) (46.8)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 836.0 732.9
-------- --------
$1,346.2 $1,236.8
======== ========
</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
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 151.3 $ 131.9 $ (50.9)
Adjustments to reconcile net income/loss to net
cash provided by operating activities:
Depreciation 1.3 1.1 1.0
Deferred income tax benefit (7.4) (8.2) (7.9)
Share of net income (loss) of subsidiaries less
dividends received (74.3) (90.9) 113.7
Other, including working capital 4.2 (.2) (3.5)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 75.1 33.7 52.4
INVESTING ACTIVITIES
Additions to operating lease assets and facilities (1.1) (.8) --
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (1.1) (.8) --
FINANCING ACTIVITIES
(Repurchase) issuance of common stock and other (27.3) 9.0 12.4
Cash dividends to shareholders (54.3) (49.3) (49.4)
Advances from (to) subsidiaries 6.3 6.5 (14.5)
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES (75.3) (33.8) (51.5)
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS $ (1.3) $ (.9) $ .9
======= ======= =======
</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
----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income (loss) $ 151.3 $ 131.9 $ (50.9)
Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss) 5.1 (16.3) (28.3)
Unrealized gain (loss) on securities, net 28.3 2.0 (1.0)
------- ------- -------
Other comprehensive loss 33.4 (14.3) (29.3)
------- ------- -------
COMPREHENSIVE INCOME (LOSS) $ 184.7 $ 117.6 $ (80.2)
======= ======= =======
</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, 1999:
Allowance for possible
losses - Note A $ 135.9 $ 11.3 $ 3.7 (B) $ (35.2) (C) $ 115.7
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
</TABLE>
Note A - Deducted from asset accounts.
Note B - Represents principally the recovery of amounts previously written off.
Note C - Represents principally reductions in asset values charged off and
uncollectible amounts.
21
<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
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average number of shares of
common stock outstanding 49.3 49.2 45.1 40.4 40.0
Net income (loss) $ 151.3 $ 131.9 $ (50.9) $ 102.7 $ 100.8
Deduct - Dividends paid and
accrued on preferred stock .1 .1 6.7 13.2 13.2
-------- -------- -------- -------- --------
Net income (loss), as adjusted $ 151.2 $ 131.8 $ (57.6) $ 89.5 $ 87.6
======== ======== ======== ======== ========
Basic net income (loss) per share $ 3.07 $ 2.68 $ (1.28) $ 2.22 $ 2.19
======== ======== ======== ======== ========
</TABLE>
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
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average number of shares used to compute basic
net income (loss) per share 49.3 49.2 45.1 40.4 40.0
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 .9 1.1 * .6 .7
Common stock issuable upon assumed conversion
of preferred stock .1 .1 * 7.9 8.0
-------- -------- -------- -------- --------
Total 50.3 50.4 45.1 48.9 48.7
Net income (loss) as adjusted per basic computation $ 151.2 $ 131.8 $ (57.6) $ 89.5 $ 87.6
Add - Dividends paid on preferred stock .1 .1 * 13.2 13.2
-------- -------- -------- -------- --------
Net income (loss), as adjusted $ 151.3 $ 131.9 $ (57.6) $ 102.7 $ 100.8
======== ======== ======== ======== ========
Diluted net income (loss) per share $ 3.01 $ 2.62 $ (1.28) $ 2.10 $ 2.07
======== ======== ======== ======== ========
</TABLE>
* Exercise of options and conversion of preferred stock is excluded from
computation of diluted loss per share because of antidilutive effects.
<TABLE>
<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 $(1.02)
======
</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.
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>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings available for fixed charges:
Net income (loss) $ 151.3 $ 131.9 $ (50.9) $ 102.7 $ 100.8
Add(deduct):
Income taxes (benefit) 102.6 99.9 12.7 72.5 66.8
Share of affiliates' earnings, net of
distributions received (59.3) (12.1) (18.3) (20.8) (29.5)
Interest on indebtedness and amortization of
debt discount and expense 232.2 234.9 222.4 202.8 170.1
Amortization of capitalized interest 1.4 1.4 1.4 3.7 1.1
Portion of operating lease expense
representative of interest factor (deemed to be
one-third) 71.8 68.9 64.5 59.1 48.1
------- ------- ------- ------- -------
Total earnings available for fixed charges $ 500.0 $ 524.9 $ 231.8 $ 420.0 $ 357.4
======= ======= ======= ======= =======
Preferred stock dividends $ .1 $ .1 $ 6.6 $ 13.2 $ 13.2
Ratio to convert preferred dividends to
pretax basis 168% 176% 107% 171% 166%
------- ------- ------- ------- -------
Preferred dividends on pretax basis .2 .2 7.1 22.6 21.9
Fixed charges:
Interest on indebtedness and amortization of
debt discount and expense 232.2 234.9 222.4 202.8 170.1
Capitalized interest 4.6 3.3 2.5 6.8 6.2
Portion of operating lease expense
representative of interest Factor (deemed to be
one-third) 71.8 68.9 64.5 59.1 48.1
------- ------- ------- ------- -------
Combined fixed charges and preferred
stock dividends $ 308.8 $ 307.3 $ 296.5 $ 291.3 $ 246.3
======= ======= ======= ======= =======
Ratio of earnings to combined fixed charges and
preferred stock dividends (A) 1.62x 1.71x .78x (B) 1.44x 1.45x
</TABLE>
(A) 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 operating
lease expense, 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.
(B) 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 1.33x.
24
<PAGE> 1
EXHIBIT 13
DEAR SHAREHOLDERS GATX enters the new century with strong momentum. Earnings per
share increased 15 percent in 1999, and our return on average shareholders'
equity was an impressive 19 percent, far exceeding most of our competitors. We
laid the foundation for future earnings growth by investing a record $1.7
billion in key markets and expanding our role as a leading provider of
telecommunication infrastructure financing. We also realigned the organization
to better reflect our strategy and clarify our external message to our
shareholders, customers and employees.
Ultimately, however, we failed in the performance measure that matters
most--total shareholder return. GATX's total return in 1999 was a negative 7.9
percent, unacceptable to our management and to our shareholders. We take little
solace in the realization that it was a difficult year in the stock market for
the majority of U.S. companies, nor in the fact that most of our commercial
finance competitors produced substantially lower total returns to their
respective shareholders.
I am confident that GATX is well positioned to produce excellent returns
for its shareholders, and we will achieve this by executing three basic
initiatives: consistent earnings growth, reallocating capital to our highest
return opportunities, and clarifi-cation of our strategy and message. I will
take the opportunity to use the balance of this letter to explore each of these
points in greater detail.
CONSISTENT GROWTH Investors place a higher valuation on companies that
consistently meet or exceed a specific earnings growth target.
As we continue to make changes within the company and focus our efforts on
building investment platforms that drive consistent growth, we have clarified
our target: 12-15 percent growth in earnings per share. We shared this target
with Wall Street and met or exceeded it in each of the past two years. While I
am pleased with our recent performance, I also recognize that the real key to
driving a higher valuation is developing a longer track record of consistent
earnings growth. Based on a number of strategic changes and opportunities within
our core businesses, I am confident that we will achieve this long-term
objective.
<PAGE> 2
GATX Rail is capitalizing on its position as the leading U.S. tank car
lessor by expanding its fleet beyond U.S. borders, increasing service
capabilities, accelerating fleet acquisition activities, and pursuing fleet
management opportunities. Each of these initiatives serves to diversify and
stabilize our sources of income, and GATX Rail is well positioned for continued
growth.
GATX Capital is applying its extensive asset knowledge, asset management
expertise, financial structuring capabilities, and partnering skills to build a
broad base of income sources. Across its primary markets, GATX Capital has
strengthened its operating lease platforms, grown fee and interest income,
expanded its venture leasing and warrant-based financing activity, and
identified attractive asset remarketing opportunities. We are also capitalizing
on a new era of infrastructure development, one that is rooted in the Internet,
telecommunications, and emerging technologies. GATX Capital has established
itself as one of the leading providers of financing to early-stage
telecommunication companies, thereby establishing a powerful growth platform
that complements our traditional transportation-related finance businesses.
GATX Terminals Corporation, part of the GATX Integrated Solutions Group,
has sold or closed a number of cyclical petroleum storage facilities and
reallocated this capital to markets with more attractive return and growth
prospects. By focusing on providing our customers with value-added services at
strategic locations, we are stabilizing our income base and are poised to grow
this segment's profitability.
The strength and diversity of our income-generating capabilities support my
confidence that we will continue to deliver our target of 12-15 percent
annualized growth in earnings per share to our shareholders.
CAPITAL ALLOCATION Allocating capital to the highest return opportunities
is a critical process for a capital-intensive business such as GATX, especially
when presented with the most exciting growth opportunities we have seen in our
history. For example, in the last four years, we have focused the majority of
our investment volume in GATX Rail and GATX Capital because these investments
generate in excess of a 20 percent return on equity, an attractive return on
investment for our shareholders, and we will continue to focus most of our
investment in these two businesses.
We have also identified ways to grow our business in a less
capital-intensive fashion. Partnering is an excellent example and one that sets
us apart from our peers. Consider GATX Capital's strategy in financing start-up
telecommunication companies. We have been active in financing telecom companies
for several years. As the growth in this market exploded, we could have opted to
allocate an increasingly larger share of our own capital to this area. Instead
we chose to form two telecom-munication investment funds with GATX Capital
acting as arranger, manager, and co-investor. Partnering with co-investors has
allowed us to aggressively pursue this exciting growth sector while limiting and
diversifying our own capital commitment. GATX Capital earns management fees,
receives spread income, and also receives warrants in many of the transactions,
resulting in tremendous return on investment potential.
<PAGE> 3
Today we have nearly 50 active partnerships across GATX, with income from
equity in these affiliates increasing almost 25 percent in 1999. Partnering is
one of our core strengths, and I plan to continue expanding this activity in the
years ahead.
Allocation of capital also incorporates reallocation of capital within the
company. During the past three years, we have implemented a strategy to sell
under-performing assets and exit weak business lines. We must accelerate this
effort and I expect to make substantial progress in 2000 as we continue to
reallocate capital to our highest return opportunities.
CORPORATE REALIGNMENT During the past year, we realigned GATX, thereby
clarifying our strategy and message as a unique finance and services company.
The majority of our earnings, cash flow, and investments are related to our two
high return businesses, GATX Rail Corporation and GATX Capital Corporation.
Prior to the realignment, the balance of the company was comprised of
several businesses, including GATX Terminals and GATX Logistics, which focus on
various aspects of supply chain management. In September 1999, I asked Dave
Edwards, then our chief financial officer, to head up a new organization called
the GATX Integrated Solutions Group. This group brings all of our supply chain
related businesses under one umbrella. Beyond the obvious benefit of sharing
services and skills across our supply chain companies, the GATX Integrated
Solutions Group positions us to achieve one of our key goals: providing chemical
customers with a bundled service offering by lever-aging the unique competitive
position we have forged within the chemical industry.
Individually, each of our three key operations has a clearly defined
strategy. GATX Rail will continue to expand its full service railcar leasing
business in North America and abroad. GATX Capital will continue to expand its
core air, technology/telecommunications, rail, and marine financing activity
through direct ownership of assets, partnerships, and asset management. GATX
Integrated Solutions Group will maximize our global service offering to chemical
and petroleum companies. As a result, GATX can provide customers with a combined
financing and service capability that is unmatched by any competitor worldwide.
Our overall mission is straightforward: drive consistent earnings growth,
earn attractive returns by allocating our capital wisely, and communicate a
simplified strategy to the market. I believe that successful execution of these
initiatives will lead to a more appropriate market valuation for GATX.
In closing I would like to thank our shareholders for the confidence they
have shown in the future of GATX. I am committed to ensuring that you are
rewarded with an attractive return on your investment. That's our primary focus
in 2000, and with the support of the many dedicated employees of GATX, I am
confident that we will deliver on this commitment.
Sincerely,
/s/ RONALD H. ZECH
RONALD H. ZECH
Chairman and Chief Executive Officer
<PAGE> 4
GATX provides a full range of rail transportation solutions, combining extensive
transportation, financial and rail logistics experience. GATX owns, operates or
has an interest in over 157,000 railcars worldwide. GATX offers full-service
tank car, freight car and locomotive leasing, fleet management, railcar design
and maintenance, innovative financing and a complete menu of integrated
e-commerce and web support services.
GATX RAIL CORPORATION operates the largest tank car fleet in North America
and a significant fleet of specialty freight cars. Its fleet totaled 87,800
railcars at the end of 1999. GATX Rail leases railcars to shippers in virtually
all industries, with a particular emphasis on chemical, petroleum and food, and
it provides all the services a company needs to operate railcars. Benefits
include improving utilization, keeping plants on schedule, arranging maintenance
schedules that maximize in-service time, helping shippers meet complex financial
challenges, improving safety records, helping ensure government regulatory
compliance and offering internet-based and e-commerce services to help manage
rail fleets more efficiently. GATX Rail's web site, www.gatxrail.com, gives an
excellent overview of GATX Rail's product and service offerings.
GATX Rail's fleet consists of more than 50 different car types from general
service cars to specialty pressure cars, designed to safely transport over 700
commodities, including chemicals, petroleum, plastics, food, coal, mineral,
agricultural, forest and consumer products. Providing repair and maintenance
support to these railcars are four one-stop service centers in the U.S., four in
Canada and one in Mexico. In addition, 38 mini-mobile repair units form an
inte-grated service network throughout North America, so that customers'
railcars can be serviced wherever they may be located.
An excellent example of GATX Rail's customer focus and integration
capabilities is a service GATX designed for Mobil Oil Corporation. A Mobil Oil
affiliate pumps crude oil from a field in central California that is 240 miles
from Mobil's nearest refinery. In the past, Mobil piped oil to a Chevron
facility, loaded it on tanker trucks, and shipped it to a marine terminal where
the crude oil was mixed with lighter crude and transferred by pipeline to the
refinery. With the Chevron facility closing, Mobil turned to GATX Rail for an
alternative. The result is a 78-unit GATX Rail TankTrain(R) system of
interconnected cars that can be loaded and unloaded in a matter of hours, not
days. Specifically, this TankTrain system transports crude oil from the field
and delivers it to a GATX Integrated Solutions Group terminalling facility.
Before unloading, the oil in the TankTrain system is blended with lighter weight
crude prior to shipment to Mobil's refinery. Using the unique patented,
environmentally friendly TankTrain technology speeds up and improves the entire
process for Mobil. The photographs on pages 9 and 11 are of another GATX
TankTrain system, which recently went into service moving sulfuric acid in
Northern Australia.
GATX Rail is an industry leader in utilizing the Internet and e-commerce to
help its customers manage their fleets. Customer offerings include up-to-date
mechanical and service information on their fleets, a content-rich interactive
environment encouraging communications, and extensive information.
GATX Rail continues to capitalize on market opportunities. Recent legislation
has mandated more stringent inspection and repair guidelines, such that many
shippers may not want to continue to service their own fleets. Therefore, GATX
Rail can buy fleets and lease them back to the original owners, while providing
additional value-adding services. GATX Rail's historic skill as a lessor and its
outstanding reputation as a service provider make this possible.
GATX Rail's business has experienced significant international growth over
the past decade. In 1996, GATX Rail acquired the remaining interest it did not
already own in the Canadian railcar lessor CGTX, recently renamed GATX Rail
Canada. This name change reflects the North American integration of operations
and the customer service network. GATX Rail Canada has 9,000 railcars in its
railcar fleet. GATX Rail de Mexico operates a fleet of nearly 2,600 railcars,
and GATX has a significant interest in European railcar lessors Ahaus Alstatter
Eisenbahn (AAE Cargo) and Kesselwagen Vermietgesellschaft mbH (KVG). AAE is the
leading general-purpose freight car lessor in Europe, with a fleet of almost
12,000 cars operating throughout Europe and the United Kingdom. Based in Germany
and Austria, KVG provides a modern fleet of 8,000 tank cars to European shippers
of chemical, petroleum and food products. These international interests provide
a strong market position through which GATX can capitalize on numerous new
European rail opportunities.
In addition to GATX Rail, the rail related assets and capabilities of GATX
Capital are a critical component of the overall rail offerings of GATX. GATX
Capital primarily leases railcars to Class I and regional railroads, and owns or
has an interest in a fleet of 50,000 railcars including coal, aggregate, hopper
and other general purpose cars. GATX Capital also buys and sells fleets of rail
assets, opportunistically selling highly valued rail assets at premiums while
purchasing other rail assets at attractive valuations that also have significant
upside
<PAGE> 5
potential. GATX Capital's asset expertise gives it a competitive advantage,
particularly as railroads have increased their demand for general-purpose cars.
Through a joint venture with the Electro-Motive Division of General Motors
(EMD), GATX Capital leases a large modern fleet of nearly 1,000 locomotives to
railroads worldwide. Locomotive Leasing Partners fills the railroads' need for a
high quality transportation product for their customers, through operating
leases of well-maintained, reliable and efficient locomotives. Railroads often
turn to LLP to help handle peak power needs or to satisfy a portion of longer
requirements through creatively structured leases. Working closely with EMD,
GATX Capital has been able to acquire, refurbish and deploy excellent assets
that are in high demand and that perform well for customers.
With over 100 years of experience, GATX has longstanding relationships with
shippers, railroads, railcar manufacturers, and the financial community. These
relationships allow GATX to provide the railcars, terms and service offerings
that help our customers serve their customers better. Though many know GATX
primarily as a full-service lessor of railcars, the reality is that we provide a
broad spectrum of transportation, distribution, and logistics solutions that
capitalize on the expertise available throughout all of GATX.
<PAGE> 6
GATX CAPITAL CORPORATION is experiencing tremendous opportunities for growth.
GATX Capital is capitalizing on opportunities in its traditional air, rail and
structured finance markets while rapidly expanding its presence in technology,
telecommunications, and venture finance.
An important component of GATX Capital's success is its ability to adapt to
new opportunities, and it has demonstrated this ability consistently. GATX
Capital has evolved from being primarily a tax-oriented lessor to a company with
skills that include asset knowledge, financial structuring, remarketing
expertise, buying and selling lease portfolios, third-party portfolio
management, and partnering capabilities.
One of the best examples of GATX Capital's ability to identify and
aggressively pursue new opportunities relates to the "new economy." The major
factors that will drive economic growth in the future are clear: globalization,
emerging technologies, and telecommunications. While many companies are racing
to keep pace with these trends, GATX Capital is well ahead of the curve.
Starting in 1987, GATX Capital began making prudent investments in venture
finance and technology leasing. Risk/return analyses were adjusted to suit the
dynamism of these emerging, warrant-based finance markets. Most importantly,
critical relationships were developed with start-up companies and key venture
capital firms. The knowledge base and contact network developed over the course
of the past decade cannot be duplicated, and the benefit of this early
initiative is evident in the potential for substantial equity-based income.
GATX Capital has provided early-stage financing to emerging companies such as
Rhythms, Exodus Communications, Copper Mountain Networks, Sentient, and Cerent.
In 1999, GATX Capital acquired a former partner, Meier Mitchell, thereby
broadening its base of new economy financing activity. Meier Mitchell has a long
and successful history in venture leasing and is recognized as one of the
pioneers of secured, warrant-based financing to early-stage companies. While
Meier Mitchell's venture leasing activity is diversified across a broad range of
equipment and industry sectors, it has unique expertise in the biotech industry,
providing GATX Capital with access to another rapidly growing market.
In addition to the areas of growth and opportunity provided by the new
economy, GATX Capital continues to expand in its traditional areas of expertise.
GATX Capital leases, manages, or has an interest in over 300 commercial jet
aircraft. The GATX Capital fleet consists largely of modern, stage III, single
aisle aircraft that have a large user base worldwide, such as B-737s and
A320-A321s.
In 1998, GATX Capital entered into a joint venture with Flightlease AG, a
subsidiary of the SAirGroup, and became a 50 percent partner in Rolls-Royce &
Partners Ltd. These ventures in aircraft operating leasing and jet engine
leasing, respectively, have allied GATX Capital with companies of unsurpassed
expertise in their fields. Both of these partnerships continue to grow and
provide exciting growth platforms for the future.
GATX Capital's strategy to expand its aircraft portfolio through partnerships
has allowed it to diversify its fleet, lower its risk profile, and create
enhanced returns through management fees and residual sharing. Joint venture
partnerships have allowed GATX Capital to broaden its presence in the aircraft
leasing market, while at the same time achieving diversification in the overall
GATX Capital portfolio. Aircraft investments constitute 29 percent of GATX
Capital's total assets.
Partnering is one of GATX Capital's core strengths and much of the company's
recent success can be tied to this critical skill. Through partnering, GATX
Capital can achieve scale in certain markets, gain insight into new asset types,
diversify its own investment activity, or establish business in a new region of
the world. Today GATX Capital has nearly 50 active partnerships providing a
substantial and growing income stream.
While the type of partners is itself quite diversified, many times GATX
Capital will join with commercial banks and finance companies to pursue
operating leasing or related activities. These active finance industry partners
include the Lombard North Central subsidiary of NatWest, Commonwealth Bank of
Australia, Heller Financial, Sanwa, and, most recently, Royal Bank of Scotland
and Halifax plc. GATX Capital's ability to work in partnership with leading
financial institutions broadens its access to capital and in many cases has
enhanced its access to regional markets.
Over the past 18 months, GATX Capital has formed two new partnerships to
pursue warrant-based financing opportunities in the telecommunications and
emerging technology markets. GATX Capital serves as arranger, manager, and a
co-investor in the funds. Focusing on early-stage companies, both partnerships
are experiencing tremendous deal flow and excellent investment opportunity,
providing a potentially strong source of income growth for GATX Capital.
Structuring financial transactions is another one of GATX Capital's core
strengths. With a goal of maximizing its own return while providing competitive
terms to its customers, GATX Capital has established itself as a leading
resource for complex financial solutions.
<PAGE> 7
Often times, structuring involves the allocation of the tax benefits of
ownership to the most efficient investors; the allocation of residual benefits
to the investors bidding most aggressively; and the allocation of defined debt
service to the lowest cost debt providers. GATX Capital has the experience to
deliver the structures and solutions that benefit all parties involved.
GATX Capital also selectively pursues opportunities in asset classes other
than air, rail, or technology equipment. In this capacity, GATX Capital invests
in and manages a diversified pool of assets.
As an investor, GATX Capital combines strong asset knowledge with excellent
financial structuring skills to provide its customers and partners not only with
traditional financial products but also innovative risk sharing arrangements.
For example, GATX Capital has orchestrated a number of joint venture
arrangements that offered its partners attractive off-balance sheet or asset
monetization alternatives.
GATX Capital also participates in high-yield debt investments in selected
industries, operating lease and asset-based lending activities, as well as
financing of marine assets. In addition, GATX Capital works with partners to
provide residual value guarantees that allow lessors to manage residual exposure
at the time of lease termination.
As a manager, GATX Capital has established partnerships with major industrial
companies, banks, and insurance companies in which the company manages lease
portfolios on behalf of these institutions. GATX Capital is able to leverage its
significant lease management and remarketing expertise while providing partners
with an efficient means for managing their portfolios. This $4.5 billion
portfolio managed on behalf of third parties provides GATX Capital with
management fees and significant residual sharing fees when assets are sold.
GATX Corporation reports the revenues and earnings of American Steamship
Company, GATX's Great Lakes shipping company, in the segment called Financial
Services. By combining American Steamship with GATX Capital's marine asset
financing group, all of GATX's marine activities are housed within one group,
providing an opportunity to optimize GATX's marine activities. With 11 vessels,
American Steamship is the largest operator of self-unloading vessels on the U.S.
Great Lakes.
<PAGE> 8
22 REPORTS OF GATX MANAGEMENT AND OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
23 MANAGEMENT'S DISCUSSION AND ANALYSIS: 1999 COMPARED TO 1998 (CONTINUED ON
PAGES 29, 31 AND 33)
26 FINANCIAL DATA OF BUSINESS SEGMENTS
28 CONSOLIDATED STATEMENTS OF OPERATIONS
30 CONSOLIDATED BALANCE SHEETS
32 CONSOLIDATED STATEMENTS OF CASH FLOWS
37 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
55 CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) AND COMMON STOCK
INFORMATION
56 SELECTED CONSOLIDATED FINANCIAL DATA
58 MANAGEMENT'S DISCUSSION AND ANALYSIS: 1998 COMPARED TO 1997
- --------------------------------------------------------------------------------
BUSINESS SEGMENTS The following summary describes GATX's current business
segments:
GATX RAIL represents GATX Rail Corporation (formerly General American
Transportation Corporation) and its foreign subsidiaries and affiliates which
lease and manage tank cars and other specialized railcars.
FINANCIAL SERVICES represents GATX Capital Corporation and its subsidiaries and
affiliates, which arrange and service the financing of equipment and other
capital assets on a worldwide basis, and American Steamship Company, which
operates self-unloading vessels on the Great Lakes.
GATX INTEGRATED SOLUTIONS GROUP encompasses GATX Terminals Corporation and its
domestic and foreign subsidiaries and affiliates, which own and operate tank
storage terminals and pipelines; GATX Logistics, Inc., which provides
distribution and logistics support services and warehousing facilities; as well
as several other GATX companies providing integrated solutions to the chemical
and petroleum industries.
<PAGE> 9
TO OUR SHAREHOLDERS: The management of GATX Corporation has prepared the
accompanying consolidated financial statements and related information included
in this 1999 Annual Report to Shareholders and has the primary responsibility
for the integrity of this information. The financial statements have been
prepared in conformity with generally accepted accounting principles and
necessarily include certain amounts which are based on estimates and informed
judgments of management.
The financial statements have been audited by the company's independent
auditors, whose report thereon appears on this page. Their role is to form an
independent opinion as to the fairness with which such statements present the
financial position of the company and the results of its operations.
GATX maintains a system of internal accounting controls which is designed to
provide reasonable assurance as to the reliability of its financial records and
the protection of its shareholders' assets. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal control should
not exceed the related benefits. Management believes the company's system
provides this appropriate balance in all material respects.
GATX's system of internal controls is further augmented by an audit committee
composed of independent directors, which meets regularly throughout the year
with management, the independent auditors and the internal auditors; an internal
audit program that includes prompt, responsive action by management; and the
annual audit of the company's financial statements by independent auditors.
/s/ RONALD H. ZECH /s/ BRIAN A. KENNEY /s/ RALPH L. O'HARA
Ronald H. Zech Brian A. Kenney Ralph L. O'Hara
Chairman, President and Vice President and Controller and
Chief Executive Officer Chief Financial Officer Chief Accounting Officer
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF GATX CORPORATION: We have audited
the accompanying consolidated balance sheets of GATX Corporation and
subsidiaries as of December 31, 1999 and 1998, 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, 1999. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of GATX Corporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Chicago, Illinois /s/ ERNST & YOUNG LLP
January 25, 2000 ERNST & YOUNG LLP
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS 1999 COMPARED TO 1998
GATX RAIL (RAIL) Rail's gross income of $571 million increased 6.7% over the
prior year period primarily due to a larger active North American fleet, a
slight increase in rental rates, and a gain from the sale of 1,700 grain cars
that did not provide an acceptable level of long-term economic value. Rail added
5,400 railcars during 1999 and at year end had 83,300 railcars on lease in North
America. Utilization ended the year at 95% on a total fleet of 87,800 railcars,
which was comparable to utilization at the end of 1998. The railcar leasing
market has become more competitive due to lower demand. Rail congestion problems
resulted in strong car demand in the chemical markets and contributed to the
historically high demand in the prior year. Although Rail anticipates continuing
to invest aggressively in railcars in 2000, the total investment will be
reflective of market conditions.
Rail's share of earnings of its two European affiliates was $4 million in 1999
compared to $3 million in 1998. Rail invested an additional $28 million in these
affiliates' freight and tank car fleets in 1999.
Record net income of $73 million increased $6 million from the prior year
period, reflecting higher revenues, including the gain related to the grain car
sale, partially offset by higher selling, general and administrative costs.
These expenses increased 12.5% largely to support business development and
information systems initiatives. Asset ownership costs increased 7.9% over last
year primarily due to an increase in operating lease expense. Depreciation and
interest did not change appreciably from last year due to Rail's continued use
of sale-leaseback financing. In 1999, $143 million of new railcars were sold and
leased back and the resultant cost is included in operating lease expense.
Repair costs as a percentage of revenues decreased from 1998 as a result of
lower material costs and fewer labor hours incurred.
FINANCIAL SERVICES Financial Services' gross income of $694 million decreased
$37 million from the prior year. Comparisons between periods are affected by the
sale of the value-added technology equipment sales and service business (VAR) in
June 1999. Excluding VAR, revenues increased 11.0% over the prior year. Gains on
the sale of stock of $15 million, which were derived from warrants received
during the financing of nonpublic start-up companies, and an increase in lease
income generated from a higher average investment portfolio were offset by lower
asset remarketing income. Lease income increased $63 million predominately
driven by the growing technology financing portfolio. Pretax asset remarketing
income of $79 million was $14 million lower than last year's record $93 million.
A significant portion of 1999 asset remarketing gains was realized from the sale
of marine and air assets. Asset remarketing income includes both gains from the
sale of assets from Financial Services' own portfolio as well as residual
sharing fees from the sale of managed assets. Asset remarketing income and gains
from the sale of stock do not occur evenly from period to period.
<PAGE> 11
During 1999, Financial Services continued to emphasize its strategy of joining
with partners to finance and manage assets. Financial Services' share of
earnings in such joint ventures was $61 million in 1999, a 32.5% increase over
last year. The increase is primarily attributable to increased contribution from
existing rail joint ventures and new air and marine joint ventures. Several new
joint ventures were formed in 1999 including a joint venture created to acquire
and lease Boeing 737 new generation aircraft and a joint venture created to
provide financing and leasing to start-up telecommunications companies.
Net income of $71 million increased 6.8% from last year and was positively
affected by an increase in the share of affiliates' earnings, the impact of the
VAR business, and the sale of stock. These increases were offset by lower
remarketing income, a decreased contribution from marine operations, higher
depreciation expense, and an increase in selling, general and administrative
expenses due to higher human resource and other costs associated with increased
investment activity. Higher average investment balances in operating leases,
specifically technology, drove the 29.6% increase in depreciation and
amortization. Marine operations contributed $3 million to net income in 1999
versus $7 million in 1998. A decline in iron ore shipments resulting from higher
imported steel volumes, competitive pricing, and lower than normal water levels
have negatively impacted current year results.
Financial Services' allowance for possible losses decreased $19 million to $111
million, representing 3.8% of net investments, down from 5.9% at the end of
1998. The loss provision was $11 million in each of 1999 and 1998. Write-offs of
$34 million in 1999 were $26 million higher than the prior year and were
primarily related to twin-aisle commercial aircraft and a steel production
facility.
Financial Services invested a record $1.2 billion in 1999, which was 42.0%
higher than 1998. Approximately $500 million was added to the technology leasing
portfolio with significant investments also made in the air, telecommunications
and venture sectors.
GATX INTEGRATED SOLUTIONS GROUP GATX Integrated Solutions Group's (ISG) gross
income of $599 million increased by 2.2% over 1998 with new business and growth
initiatives being partially offset by the absence of terminal facilities that
were sold or closed during 1999. For ongoing wholly owned operations, gross
income grew by 8% reflecting new business and improved pricing.
As part of its 1997 strategic realignment, ISG divested three domestic terminals
and six foreign terminals in early 1999. One other domestic and one United
Kingdom terminal were closed during 1999.
In ISG's ongoing North American bulk liquid terminal and pipeline operation,
throughput and capacity utilization improved to 537 million barrels and 95% in
1999 compared to 531 million barrels and 94% in 1998. Space utilization for the
company's dry goods integrated logistics operation likewise improved to 96% from
95% in 1998.
<PAGE> 12
ISG's joint ventures, which serve the European, Asian, Latin American and North
American markets, contributed $21 million to gross income in 1999 which is
consistent with last year as the benefit of an investment in a distillate
blending and distribution joint venture was offset by lower results at Olympic
Pipeline Company (Olympic). On June 10, 1999, a rupture and explosion occurred
on the pipeline owned by Olympic, causing three fatalities and property damage
as well as damage to the environment. The cause of the incident is being
investigated by a number of state and federal agencies. GATX Terminals
(Terminals), an ISG operating company, owns 25.1% of the common shares of
Olympic. Management is presently unable to determine the impact, if any, of this
incident on GATX.
In early 2000, ISG announced that Terminals purchased from Koninklijke Vopak
N.V. (Vopak) Vopak's 50% ownership interests in GAMATEX N.V., located in
Belgium, and Tankstore Ltd., located in Singapore. The result gave Terminals
100% ownership in both GAMATEX N.V. and Tankstore Ltd. In turn, Terminals sold
to Vopak its 50% ownership interest in Tees Storage Company Ltd., a terminal
facility in Middlesborough, England.
Net income of $25 million increased by $7 million or 41.2% over 1998. This
significant improvement is largely attributable to ongoing operations reflecting
higher contribution margins as well as lower asset ownership costs and SG&A. The
remainder of the increase is the net impact of increased business development
efforts and nonrecurring items, including a gain on the sale of rights along the
Central Florida Pipeline and discontinued terminals.
CORPORATE AND OTHER Corporate and Other net expense of $17 million was
comparable to 1998 net expense of $18 million. Increases in selling, general and
administrative expenses were offset by decreases in interest expense.
<PAGE> 13
FINANCIAL DATA OF BUSINESS SEGMENTS
During 1999, GATX formed GATX Integrated Solutions Group, a combination of
operating companies to be managed together sharing resources and expertise to
create value-adding supply chain and logistics solutions. Further, the company's
Great Lakes shipping operations were combined with GATX Capital's marine
financing group. Accordingly, GATX's operating segments are now defined as GATX
Rail, Financial Services, and GATX Integrated Solutions Group. The prior year
information has been restated to reflect the new segment presentation.
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. Management assesses performance using return measures such
as return on equity both across segments and over time. 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>
GATX
INTEGRATED
GATX FINANCIAL SOLUTIONS CORPORATE INTER-
IN MILLIONS RAIL SERVICES GROUP AND OTHER SEGMENT TOTAL
---------- ---------- ---------- ---------- ---------- ----------
1999
<S> <C> <C> <C> <C> <C> <C>
Profitability
Revenues $ 567.1 $ 632.9 $ 578.0 $ 1.9 $ (6.9) $ 1,773.0
Share of affiliates' earnings 3.8 60.7 21.4 -- -- 85.9
---------- ---------- ---------- ---------- ---------- ----------
Gross Income 570.9 693.6 599.4 1.9 (6.9) 1,858.9
Interest expense (52.6) (122.4) (52.3) (7.3) 2.4 (232.2)
Depreciation and amortization (100.1) (151.9) (52.7) (1.4) (2.1) (308.2)
Income (loss) before taxes 117.5 117.9 44.8 (25.0) (1.3) 253.9
Net income (loss) 72.9 71.0 25.0 (16.7) (0.9) 151.3
Return on equity (A) 23.3% 21.3% 11.7% n/m n/m 19.3%
Financial Position
Debt 831.0 2,255.3 664.9 67.6 (8.8) 3,810.0
Equity 327.5 362.8 216.6 (65.9) (5.0) 836.0
Investments in affiliated companies 91.3 665.5 199.8 .7 -- 957.3
Identifiable assets 1,693.8 3,088.9 1,166.4 29.8 (112.1) 5,866.8
Items Affecting Cash Flow
Net cash provided by (used in)
operating activities 141.4 161.5 67.0 (15.1) -- 354.8
Portfolio proceeds -- 503.0 -- -- -- 503.0
---------- ---------- ---------- ---------- ---------- ----------
Total cash provided (used) 141.4 664.5 67.0 (15.1) -- 857.8
Capital additions and
portfolio investments 386.5 1,217.8 80.0 1.7 -- 1,686.0
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
(A) Based on average equity for the year.
<PAGE> 14
<TABLE>
<CAPTION>
GATX
INTEGRATED
GATX FINANCIAL SOLUTIONS CORPORATE INTER-
IN MILLIONS RAIL SERVICES GROUP AND OTHER SEGMENT TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998
Profitability
Revenues $ 532.3 $ 684.3 $ 565.8 $ 3.2 $ (4.7) $ 1780.9
Share of affiliates' earnings 2.7 45.8 20.7 -- -- 69.2
-------- -------- -------- -------- -------- --------
Gross Income 535.0 730.1 586.5 3.2 (4.7) 1,850.1
Interest expense (52.9) (121.4) (54.4) (7.8) 1.6 (234.9)
Depreciation and amortization (97.3) (117.2) (51.1) (1.1) (0.8) (267.5)
Income (loss) before taxes 108.5 121.1 31.6 (27.1) (2.3) 231.8
Net income (loss) 67.1 66.5 17.7 (17.9) (1.5) 131.9
Return on equity (A) 23.3% 22.8% 9.1% n/m n/m 19.0%
Financial Position
Debt 710.4 1,717.4 629.0 68.7 (3.9) 3,121.6
Equity 298.3 304.6 208.4 (74.3) (4.1) 732.9
Investments in affiliated companies 62.2 570.3 150.3 -- -- 782.8
Identifiable assets 1,539.9 2,443.8 1,104.5 19.5 (100.9) 5,006.8
Items Affecting Cash Flow
Net cash provided by (used in)
operating activities 166.1 148.5 93.3 (16.8) -- 391.1
Portfolio proceeds -- 811.5 -- -- (6.4) 805.1
-------- -------- -------- -------- -------- --------
Total cash provided (used) 166.1 960.0 93.3 (16.8) (6.4) 1,196.2
Capital additions and
portfolio investments 384.8 857.8 79.0 0.8 (7.7) 1,314.7
-------- -------- -------- -------- -------- --------
1997
Profitability
Revenues $ 493.0 $ 675.8 $ 549.9 $ 0.6 $ (1.3) $1,718.0
Share of affiliates' earnings 1.0 27.9 20.3 -- -- 49.1
-------- -------- -------- -------- -------- --------
Gross Income 494.0 703.7 570.1 0.6 (1.3) 1,767.1
Interest expense (51.0) (103.9) (57.5) (11.6) 1.6 (222.4)
Depreciation and amortization (98.0) (88.1) (65.2) (1.0) -- (252.3)
Income (loss) before taxes 100.1 102.5 17.2 (31.6) (1.3) 186.9
Operating income (loss) before restructuring (B) 62.7 61.5 9.3 (20.9) (0.7) 111.9
Net income (loss) 62.7 61.5 (153.5) (20.9) (0.7) (50.9)
Return on equity (A) 22.1% 23.1% n/m n/m n/m (7.1)%
Financial Position
Debt 693.8 1,798.9 629.1 90.1 -- 3,211.9
Equity 278.8 277.7 181.3 (79.8) (2.6) 655.4
Investment in affiliated companies 59.8 549.6 140.4 -- -- 749.8
Identifiable assets 1,504.5 2,495.4 1,049.2 26.9 (85.8) 4,990.2
Items Affecting Cash Flow
Net cash provided by (used in)
operating activities 158.3 104.5 81.0 (24.5) -- 319.3
Portfolio proceeds -- 430.8 -- -- -- 430.8
-------- -------- -------- -------- -------- --------
Total cash provided (used) 158.3 535.3 81.0 (24.5) -- 750.1
Capital additions and
portfolio investments 336.9 866.5 72.2 -- -- 1,275.6
-------- -------- -------- -------- -------- --------
</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 closure of certain nonstrategic terminals and pipelines and
$39.0 million after-tax charge for the write-down of goodwill related to the
company's dry goods integrated logistics operation. The after-tax impacts were
$163.8 million, $123.8 million, and $39.0 million respectively.
<PAGE> 15
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
IN MILLIONS, EXCEPT PER SHARE DATA/YEAR ENDED DECEMBER 31 1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Gross Income
Lease, interest and financing services $ 1,132.5 $ 1,041.2 $ 962.0
Distribution services 578.0 565.8 549.9
Other income 62.5 173.9 206.1
--------------- --------------- ---------------
Revenues 1,773.0 1,780.9 1,718.0
Share of affiliates' earnings 85.9 69.2 49.1
Total Gross Income 1,858.9 1,850.1 1,767.1
--------------- --------------- ---------------
Ownership Costs
Depreciation and amortization 308.2 267.5 252.3
Interest 232.2 234.9 222.4
Operating lease expense 215.5 206.8 193.6
Total Ownership Costs 755.9 709.2 668.3
--------------- --------------- ---------------
OTHER COSTS AND EXPENSES
OPERATING EXPENSES 591.5 659.5 672.6
Selling, general and administrative 246.3 234.9 228.5
Provision for possible losses 11.3 14.7 11.1
Provision for restructuring -- -- 224.8
--------------- --------------- ---------------
Income (Loss) Before Income Taxes 253.9 231.8 (38.2)
Income Taxes 102.6 99.9 12.7
Net Income (Loss) $ 151.3 $ 131.9 $ (50.9)
Per Share Data --------------- --------------- ---------------
Basic:
Net Income (Loss) $ 3.07 $ 2.68 $ (1.28)
Average Number of Common Shares (in thousands) 49,296 49,178 45,084
Diluted:
Net Income (Loss) $ 3.01 $ 2.62 $ (1.28)
Average Number of Common Shares and Common
Share Equivalents (in thousands) 50,301 50,426 45,084
Dividends paid:
Common $ 1.10 $ 1.00 $ .92
$3.875 Cumulative Preferred -- -- 1.9375
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS 1999 COMPARED TO 1998
GROSS INCOME of $1,859 million increased $9 million from 1998. The comparison of
1999 to 1998 is influenced by the midyear sale of the VAR business.
LEASE, INTEREST AND FINANCING SERVICES INCOME of $1,133 million in 1999
increased $91 million over the prior year. Financial Services' lease income grew
23.3% in 1999 as a result of a higher average portfolio in 1999. The $14 million
decrease in asset remarketing income is partially offset by a $12 million
increase in gains from stock sales. Rail's rental revenue increased 4.5% from
the prior year period due to a larger North American active fleet. Rail's 1999
revenues also include the gain from the sale of 1,700 grain cars.
DISTRIBUTION SERVICES INCOME of $578 million grew 2.2% from the prior year.
Comparisons between periods are affected by terminal locations sold or closed
that were part of the 1997 restructuring plan. Distribution services income from
continuing operations and development efforts increased 9.5% over the prior year
period reflecting new business and improved pricing primarily in the terminal
and pipeline operations.
OTHER INCOME of $63 million significantly decreased from the prior year due to
the sale of the VAR business in June 1999. VAR revenue in 1999 was $67 million
versus $175 million in 1998.
SHARE OF AFFILIATES' EARNINGS grew by 24.1% over the prior year due to
significant growth at Financial Services, particularly within air and rail joint
ventures.
OWNERSHIP COSTS of $756 million increased $47 million over the prior year
period. Depreciation and amortization expense of $308 million increased $41
million and reflects the high level of portfolio investments in operating lease
assets. The increase in operating lease expense reflects Rail's sale-leaseback
financing of the railcar additions.
OPERATING EXPENSES were 10.3% lower than 1998. This decrease is largely due to
the sale of the VAR business and cost savings from closed terminal locations,
partially offset by higher costs to support new business at ISG.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES of $246 million increased 4.9% over
the prior year due to higher human resource and other administrative expenses
associated with increased portfolio investment activity and costs incurred to
support business development and information systems initiatives.
THE PROVISION FOR POSSIBLE LOSSES of $11 million decreased $3 million from last
year. The 1998 provision included a $3 million write-off of an ISG customer that
ceased operations.
INCOME TAXES of $103 million represent an effective tax rate of 40.4%, which is
lower than last year's rate of 43.1%. The prior year's provision included
certain expenses, including a goodwill write-down related to VAR, that were not
deductible for tax purposes.
NET INCOME of $151 million, an increase of 14.7% from last year, was driven by
increased earnings at Rail and ISG.
<PAGE> 17
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
IN MILLIONS/DECEMBER 31 1999 1998
---------- ----------
<S> <C> <C>
Assets
Cash and Cash Equivalents $ 102.5 $ 94.5
Receivables
Trade accounts 153.6 156.2
Finance leases 645.7 676.0
Secured loans 358.0 241.6
Less-Allowance for possible losses (115.7) (135.9)
---------- ----------
1,041.6 937.9
Operating Lease Assets and Facilities
Railcars and service facilities 2,552.6 2,567.1
Tank storage terminals and pipelines 1,460.7 1,168.2
Operating lease investments and other 1,311.6 974.4
---------- ----------
5,324.9 4,709.7
Less-Allowance for depreciation (2,042.9) (1,919.6)
---------- ----------
3,282.0 2,790.1
Investments in Affiliated Companies 957.3 782.8
Other Assets 483.4 401.5
---------- ----------
$ 5,866.8 $ 5,006.8
Liabilities, Deferred Items and Shareholders' Equity
Accounts Payable $ 372.3 $ 353.0
Accrued Expenses 65.8 54.1
Debt
Short-term 377.4 299.9
Long-term:
Recourse 2,785.7 2,171.3
Nonrecourse 463.8 451.9
Capital lease obligations 183.1 198.5
---------- ----------
3,810.0 3,121.6
Deferred Income Taxes 457.2 392.6
Other Deferred Items 325.5 352.6
---------- ----------
Total Liabilities and Deferred Items 5,030.8 4,273.9
Shareholders' Equity
Preferred stock -- --
Common stock 34.5 34.3
Additional capital 338.7 331.6
Reinvested earnings 543.0 446.0
Accumulated other comprehensive income (loss) 1.2 (32.2)
---------- ----------
917.4 779.7
Less-Cost of common shares in treasury (81.4) (46.8)
Total Shareholders' Equity 836.0 732.9
$ 5,866.8 $ 5,006.8
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF BALANCE SHEETS 1999 COMPARED TO 1998
TOTAL ASSETS were $5.9 billion and increased $860 million from the prior period.
Growth from a record level of portfolio investments and capital additions was
partially offset by depreciation and amortization, the sale-leaseback of
railcars at Rail, and portfolio asset sales at Financial Services.
In addition to the $5.9 billion of assets on the balance sheet, GATX utilizes
approximately $1.5 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, increased $104
million mostly due to secured loan activity at Financial Services and a decrease
in the allowance for possible losses. Significant new investment opportunities,
specifically telecommunications and venture investments, resulted in a $116
million increase in secured loans. The allowance for possible losses decreased
from the prior period, as write-offs at Financial Services were $34 million.
OPERATING ASSETS AND FACILITIES of $3.3 billion increased by $492 million from
1998 largely due to the $1.7 billion of portfolio investments and capital
additions made in 1999. Offsetting these additions were depreciation, the
sale-leaseback of railcars at Rail and asset remarketing activities.
INVESTMENTS IN AFFILIATED COMPANIES grew 22.3% in 1999 with significant
investments in air and rail joint ventures. Approximately $186 million was
invested in GATX's joint ventures in 1999 and a record $86 million of equity
income was recognized. Cash distributions from affiliates, which include
dividends and the return of investment, decreased substantially from the prior
year's record distributions.
OTHER ASSETS of $483 million increased $82 million since the end of last year,
with the majority of the increase due to progress payments for aircrafts and
investments in stock warrants.
TOTAL DEBT of $3.8 billion increased $688 million from the end of 1998 to fund
the record portfolio investment volume, a significant level of fleet additions
and business development initiatives.
TOTAL SHAREHOLDERS' EQUITY increased $103 million, reflecting net income of $151
million partially offset by $54 million in common stock dividends and the
repurchase of $35 million of common stock. Unrealized gains on stock warrants
held and changes to the cumulative foreign currency translation adjustment added
$33 million to equity.
<PAGE> 19
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN MILLIONS/YEAR ENDED DECEMBER 31 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 151.3 $ 131.9 $ (50.9)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Realized gains on remarketing of leased equipment (75.5) (72.9) (74.1)
Depreciation and amortization 308.2 267.5 252.3
Provision for possible losses 11.3 14.7 11.1
Deferred income taxes 62.5 64.4 36.2
Provision for restructuring, net of tax -- -- 162.8
Net change in trade receivables, inventories,
accounts payable and accrued expenses 21.0 (13.4) 34.9
Other (124.0) (1.1) (53.0)
---------- ---------- ----------
Net cash provided by operating activities 354.8 391.1 319.3
Investing Activities
Additions to operating lease assets and facilities (420.0) (468.5) (362.0)
Additions to equipment on lease, net of
nonrecourse financing (697.0) (501.6) (536.4)
Secured loans extended (268.8) (161.6) (35.1)
Investments in affiliated companies (186.4) (147.2) (306.1)
Other investments and progress payments (113.8) (35.8) (36.0)
---------- ---------- ----------
Capital additions and portfolio investments (1,686.0) (1,314.7) (1,275.6)
Portfolio proceeds:
From remarketing of leased equipment 221.0 242.0 218.5
From return of investment 282.0 563.1 212.3
---------- ---------- ----------
Total portfolio proceeds 503.0 805.1 430.8
Proceeds from other asset sales 254.0 261.6 226.9
---------- ---------- ----------
Net cash used in investing activities (929.0) (248.0) (617.9)
Financing Activities
Proceeds from issuance of long-term debt 981.5 360.1 569.9
Repayment of long-term debt (395.7) (361.6) (395.2)
Net increase (decrease) in short-term debt 95.6 (69.2) 207.8
Repayment of capital lease obligations (17.6) (15.4) (15.3)
(Repurchase) issuance of common stock and other (27.3) 9.0 12.4
Cash dividends (54.3) (49.3) (49.4)
---------- ---------- ----------
Net cash provided by (used in) financing activities 582.2 (126.4) 330.2
---------- ---------- ----------
Net Increase in Cash and Cash Equivalents $ 8.0 $ 16.7 $ 31.6
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CASH FLOWS 1999 COMPARED TO 1998
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 $355 million of cash flow in
1999, a $36 million decrease from 1998. Net income adjusted for noncash items
generated $458 million of cash, an increase of $52 million over 1998, primarily
due to increased net income and depreciation and amortization. Changes in
working capital and other generated $89 million less cash in 1999 largely due to
an increase in share of affiliates' earnings offset by lower affiliate dividends
and settlement of litigation subject to final court approval.
CAPITAL ADDITIONS AND PORTFOLIO INVESTMENTS totaled a record $1.7 billion, an
increase of $371 million from 1998. Rail's capital additions in 1999 were $387
million, including $344 million to acquire 5,400 railcars throughout North
America. Rail also acquired additional interests in both of its European rail
joint ventures. GATX Integrated Solutions Group's capital additions were
comparable to the prior period; an investment in a joint venture distillate
blending and distribution business and the purchase of Leaman Logistics, Inc., a
chemical logistics and transportation company, were offset by the timing of
terminal improvement projects.
Financial Services' portfolio investments of $1.2 billion were $360 million
higher than 1998, representing strong market opportunities in the technology
leasing, aircraft, telecommunication and venture sectors. Financial Services'
technology leasing operation funded $494 million, a 61.4% increase over 1998's
volume. Financial Services invested $139 million and $147 million in joint
ventures in 1999 and 1998, respectively. Financial Services also extended $269
million of loans to various entities in 1999, which are collateralized by
various types of assets.
PORTFOLIO PROCEEDS of $503 million decreased $302 million from 1998. Portfolio
proceeds in 1998 were exceptionally high and 1999 is more reflective of
historical levels. Proceeds from the remarketing of leased equipment, primarily
rail and aircraft assets, included both the return of principal and gains on the
transactions. Proceeds from the return of investment were $282 million and $563
million for 1999 and 1998, respectively. Also included in the portfolio proceeds
amount are loan principal receipts and return of capital distributions from
joint venture investments.
PROCEEDS FROM OTHER ASSET SALES of $254 million in 1999 included the receipt of
$143 million from the sale-leaseback of railcars at GATX Rail. Additional asset
sale activity included Rail's sale of 1,700 grain cars and ISG's sale of its
United Kingdom and Port Everglades terminals. In 1998, GATX Rail and Financial
Services sold and leased back $231 million of railcars and ISG sold its
Vancouver terminal. The sale of certain selected terminal locations is
consistent with the 1997 strategic realignment plan.
CASH PROVIDED BY FINANCING ACTIVITIES increased $709 million compared to 1998 as
a result of the high level of current year capital additions and portfolio
investments, lower portfolio proceeds and lower sale-leaseback activity in 1999.
During 1999, $982 million of long-term debt was issued and $396 million of
long-term obligations were repaid. Short-term debt increased $96 million. GATX
also repurchased 1.1 million common shares for $35 million.
Common dividends per share were $1.10 in 1999 compared to $1.00 in 1998. In
January 2000, the Board of Directors approved a 9% increase in the quarterly
dividend to $.30 per common share, or $1.20 on an annualized basis. This is the
fifteenth consecutive year GATX has increased its dividend.
LIQUIDITY AND CAPITAL RESOURCES: GATX Rail Corporation (GRC) and GATX Capital
have revolving credit facilities. GRC and GATX Capital also have commercial
paper programs and uncommitted money market lines which are used to fund
operating needs. The GRC 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, GRC and GATX Capital
individually must keep unused revolver credit capacity at least equal to the
amount of commercial paper outstanding. At December 31, 1999, GATX and its
subsidiaries had available unused committed lines of credit amounting to $433.5
million.
GRC has a $650 million shelf registration for pass through trust certificates
and debt securities of which $220 million of notes and $106 million of pass
through certificates had been issued at year end. GATX Capital has a shelf
registration for $500 million of which $485 million has been issued. GATX
Capital filed a $1.0 billion shelf registration, which was declared effective by
the Securities and Exchange Commission in January 2000. At year end, GATX had $2
billion of commitments to provide financing to customers or to acquire assets,
$742 million of which is scheduled to fund in 2000.
<PAGE> 21
At December 31, 1999, approximately $333 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 GRC 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, 1999, if
market rates were to increase by 10% of GATX's weighted average floating rate,
after-tax interest expense would increase by approximately $4 million in 2000.
Changes in certain currency exchange rates would affect GATX's reported
earnings. Based on 1999 reported earnings, a uniform and hypothetical 10%
strengthening in the U.S. dollar versus those foreign currencies would decrease
after-tax income in 2000 by approximately $4 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.
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 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 and a number of divested terminals facilities for
which GATX believes it has adequate reserves.
GATX's environmental reserve at the end of 1999 was $87 million and reflects
GATX's best estimate of the cost to remediate known environmental conditions.
Additions to the reserve were $12 million in each of 1999 and 1998. Expenditures
charged to the reserve amounted to $8 million and $9 million in 1999 and 1998,
respectively.
<PAGE> 22
In 1999, GATX made capital expenditures of $8 million for environmental and
regulatory compliance compared to $5 million in 1998. 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 $11 million in 2000. GATX anticipates it
will make annual expenditures at approximately the same level over each of the
next three years.
YEAR 2000 READINESS DISCLOSURE: GATX's program to resolve the Year 2000 issue on
a timely basis was successful. All affected systems were remediated or replaced
as planned. There were no significant interruptions to customer service, and
there was no significant disruption to internal systems as a result of the year
2000 changeover. The total Year 2000 cost was approximately $9 million, with
approximately $4 million expensed in 1999. GATX will continue to monitor its
significant computer systems throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
FORWARD-LOOKING STATEMENTS: 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 GATX 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 aircraft, petroleum, chemical, rail,
technology and steel industries.
<PAGE> 23
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IN MILLIONS, EXCEPT NUMBER OF SHARES DOLLARS SHARES
------- ------
DECEMBER 31 1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock
Balance at beginning of period $ -- $ -- $ 3.4 26,065 26,365 3,418,705
Conversion of preferred stock
into common stock -- -- (3.4) (754) (300) (3,392,340)
----------- ----------- ----------- ---------- ---------- ----------
Balance at end of period -- -- -- 25,311 26,065 26,365
Common Stock
Balance at beginning of period 34.3 34.1 28.8 54,822,163 54,480,556 46,129,548
Issuance of common stock .2 .2 .4 372,413 340,107 548,754
Conversion of preferred stock
into common stock -- -- 4.9 3,770 1,500 7,802,254
----------- ----------- ----------- ---------- ---------- ----------
Balance at end of period 34.5 34.3 34.1 55,198,346 54,822,163 54,480,556
Treasury Stock
Balance at beginning of period (46.8) (46.8) (47.0) (5,538,230) (5,539,440) (5,580,078)
Purchase of common stock (34.6) -- -- (1,065,010) -- --
Issuance of common stock -- -- .2 4,193 1,210 40,638
----------- ----------- ----------- ---------- ---------- ----------
Balance at end of period (81.4) (46.8) (46.8) (6,599,047) (5,538,230) (5,539,440)
Additional Capital
Balance at beginning of period 331.6 322.6 314.6
Issuance of common stock 7.1 9.0 13.0
Conversion of preferred stock
into common stock -- -- (5.0)
----------- ----------- -----------
Balance at end of period 338.7 331.6 322.6
Reinvested Earnings
Balance at beginning of period 446.0 363.4 463.7
Net income (loss) 151.3 131.9 (50.9)
Dividends declared (54.3) (49.3) (49.4)
----------- ----------- -----------
Balance at end of period 543.0 446.0 363.4
Accumulated Other
Comprehensive Income (Loss)
Balance at beginning of period (32.2) (17.9) 11.4
Foreign currency translation gain (loss) 5.1 (16.3) (28.3)
Unrealized gain (loss) on securities, net 28.3 2.0 (1.0)
Balance at end of period 1.2 (32.2) (17.9)
----------- ----------- -----------
Total Shareholders' Equity $ 836.0 $ 732.9 $ 655.4
----------- ----------- -----------
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
IN MILLIONS/YEAR ENDED DECEMBER 31 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) $ 151.3 $ 131.9 $ (50.9)
Other comprehensive income
(loss), net of tax:
Foreign currency translation gain (loss) 5.1 (16.3) (28.3)
Unrealized gain (loss) on securities, net 28.3 2.0 (1.0)
---------- ---------- ----------
Other comprehensive income (loss) 33.4 (14.3) (29.3)
---------- ---------- ----------
Comprehensive Income (Loss) $ 184.7 $ 117.6 $ (80.2)
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial data of business segments for 1999, 1998, and 1997 on pages 26 and 27
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 pretax operating results
shown as share of affiliates' earnings.
CASH EQUIVALENTS--GATX considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
OPERATING LEASE ASSETS AND FACILITIES--Operating lease assets and facilities are
stated principally at cost. Assets acquired under capital leases are included in
operating lease assets and the related obligations are recorded as liabilities.
Provisions for depreciation include the amortization of the cost of capital
leases and are computed by the straight-line method which results in equal
annual depreciation charges over the estimated useful lives of the assets. The
estimated useful lives of depreciable assets are as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Railcars............................................................20-38 years
Locomotives......................................................... 28 years
Aircraft............................................................ 25 years
Technology equipment/software....................................... 3-5 years
Marine vessels......................................................15-40 years
Buildings, leasehold improvements, storage tanks and pipelines...... 5-40 years
Machinery and related equipment..................................... 3-20 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 Financial Services' technology equipment sales business was written off, as
that asset was determined to be impaired. Goodwill, net of accumulated
amortization of $40.9 million and $37.5 million, was $124.7 million and $116.6
million as of December 31, 1999 and 1998, respectively. Amortization expense was
$6.0 million in 1999, $13.8 million in 1998, and $6.7 million in 1997.
<PAGE> 25
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 $220.4 million at December 31, 1999.
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.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS--GATX uses off-balance sheet financial
instruments such as interest rate and currency swaps, forwards and similar
contracts to set interest and exchange rates on existing or anticipated
transactions. 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 these
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 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, technology equipment and marine
vessels as well as terminaling, warehousing and logistics services. In addition,
income is derived from finance leases, asset remarketing, stock sales, secured
loans, technology equipment sales and other services.
FOREIGN CURRENCY TRANSLATION--The assets and liabilities of GATX operations
located outside the United States are translated at exchange rates in effect at
year end and income statements are translated at the average exchange rates for
the year. Adjustments resulting from the translation of foreign currency
financial statements are deferred and recorded as a separate component of
accumulated other comprehensive income (loss). The cumulative foreign currency
translation adjustment recorded in accumulated other comprehensive income (loss)
was $(33.7) million and $(38.8) million at the end of 1999 and 1998,
respectively.
INVESTMENTS IN EQUITY SECURITIES--Financial Services' venture investment
portfolio includes stock and stock warrants held as available-for-sale
securities. The unrealized gain on these securities recorded in accumulated
other comprehensive income (loss) was $34.9 million and $6.6 million at the end
of 1999 and 1998, 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.
NEW ACCOUNTING PRONOUNCEMENTS--The Financial Accounting Standards Board issued
Statement No. 133 -Accounting for Derivative Instruments and Hedging Activities
(SFAS No. 133). 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. GATX utilizes fundamental derivatives to hedge changes
in interest rates and foreign currencies. In July 1999, Statement No. 137 was
issued which deferred the effective date of SFAS No. 133 for one year. SFAS No.
133 is now required to be adopted in years beginning after June 15, 2000.
Management is currently assessing the impact that the adoption of SFAS No. 133
will have on the company's financial position, results of operations and cash
flows. GATX expects to adopt SFAS No. 133 effective January 1, 2001.
RECLASSIFICATIONS--Certain amounts in the 1998 and 1997 financial statements
have been reclassified to conform to the 1999 presentation.
<PAGE> 26
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 1999 1998
------- -------
<S> <C> <C>
Net minimum future lease receivables .... $ 664.1 $ 690.0
Estimated residual values ............... 262.7 202.5
------- -------
926.8 892.5
Less-Unearned income .................... (281.1) (216.5)
------- -------
Investment in finance leases ............ $ 645.7 $ 676.0
</TABLE>
OPERATING LEASES--The majority of railcar and tank storage assets and certain
other equipment leases are accounted for as operating leases.
MINIMUM FUTURE RECEIPTS--Minimum future lease receipts from finance leases and
minimum future rental receipts from noncancelable operating leases by year at
December 31, 1999 were (in millions):
<TABLE>
<CAPTION>
FINANCE OPERATING
LEASES LEASES TOTAL
------- --------- ---------
<S> <C> <C> <C>
2000 ................ $ 175.9 $ 825.2 $ 1,001.1
2001 ................ 120.7 609.9 730.6
2002 ................ 69.1 431.1 500.2
2003 ................ 44.6 269.7 314.3
2004 ................ 31.4 175.9 207.3
Years thereafter .... 222.4 495.5 717.9
------- --------- ---------
$ 664.1 $ 2,807.3 $ 3,471.4
</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 1999 1998
------- -------
<S> <C> <C>
Railcars ........................... $ 150.0 $ 151.1
Great Lakes vessels ................ 159.5 159.5
Other .............................. 3.0 1.8
------- -------
312.5 312.4
Less-Allowance for depreciation .... (194.0) (183.8)
------- -------
118.5 128.6
Finance leases ..................... 6.9 8.6
------- -------
$ 125.4 $ 137.2
</TABLE>
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 for the years ended December 31, 1999, 1998, and 1997 was $215.5
million, $206.8 million, and $193.6 million, respectively. Sublease income was
$1.7 million, $3.8 million, and $5.1 million, in 1999, 1998, and 1997,
respectively.
FUTURE MINIMUM RENTAL PAYMENTS--Future minimum rental payments due under
noncancelable leases at December 31, 1999 were (in millions):
<PAGE> 27
<TABLE>
<CAPTION>
NONRECOURSE
CAPITAL OPERATING OPERATING
LEASES LEASES LEASES
--------- --------- ---------
<S> <C> <C> <C>
2000 ...................................................... $ 32.4 $ 157.4 $ 38.2
2001 ...................................................... 31.5 142.1 39.9
2002 ...................................................... 30.8 140.5 37.4
2003 ...................................................... 28.6 122.1 40.0
2004 ...................................................... 23.4 111.7 39.9
Years thereafter .......................................... 133.5 1,204.4 601.1
--------- --------- ---------
$ 280.2 $ 1,878.2 $ 796.5
Less--Amounts representing interest ....................... (97.1)
--------- --------- ---------
Present value of future minimum capital lease payments .... $ 183.1
</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 $1.1 million. Interest expense on the
above capital leases was $15.2 million in 1999, $16.5 million in 1998, and $17.6
million in 1997.
The amounts shown as nonrecourse operating leases reflect rental payments of
three 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 and company blanket
liens. As of December 31, 1999, secured loan principal due by year was as
follows (in millions):
<TABLE>
<CAPTION>
LOAN
PRINCIPAL
---------
<S> <C>
2000 ................ $ 78.0
2001 ................ 58.0
2002 ................ 44.3
2003 ................ 55.0
2004 ................ 25.6
Years thereafter .... 97.1
-------
$ 358.0
</TABLE>
<PAGE> 28
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 $75.3 million, $167.5 million,
and $71.6 million in 1999, 1998 and 1997, 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 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Gross income ..... $ 849.2 $ 611.9 $ 505.7
Pretax income .... 193.5 157.7 117.9
</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 1999 1998
--------- ---------
<S> <C> <C>
Total assets.................................... $ 5,257.0 $ 4,200.7
Long-term liabilities .......................... 1,971.6 2,056.6
Other liabilities .............................. 893.0 339.7
--------- ---------
Shareholders' equity............................ $ 2,392.4 $ 1,804.4
</TABLE>
NOTE E--FOREIGN OPERATIONS
GATX has a number of investments in subsidiaries and affiliated companies which
are located in or derive revenues from foreign countries. Foreign entities
contribute significantly to share of affiliates' earnings. The foreign
identifiable assets represent investments in affiliated companies as well as
fully consolidated assets for a Canadian railcar subsidiary, a Mexican railcar
operation, and foreign lease, loan and other investments.
<TABLE>
<CAPTION>
IN MILLIONS
YEAR ENDED DECEMBER 31
REVENUES 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Foreign ....................................................... $ 197.8 $ 219.7 $ 188.8
United States ................................................. 1,575.2 1,561.2 1,529.2
--------- --------- ---------
$ 1,773.0 $ 1,780.9 $ 1,718.0
SHARE OF AFFILIATES' EARNINGS
Foreign ....................................................... $ 49.0 $ 37.9 $ 33.9
United States ................................................. 36.9 31.3 15.2
--------- --------- ---------
$ 85.9 $ 69.2 $ 49.1
<CAPTION>
DECEMBER 31
IDENTIFIABLE ASSETS 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Foreign ....................................................... $ 1,165.7 $ 898.2 $ 882.6
United States ................................................. 4,701.1 4,108.6 4,107.6
--------- --------- ---------
$ 5,866.8 $ 5,006.8 $ 4,990.2
</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).
<PAGE> 29
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 1999 1998
------------------- -------------------
AMOUNT RATE AMOUNT RATE
------- ---- ------- ----
<S> <C> <C> <C> <C>
Commercial paper ................ $ 261.5 6.65% $ 163.3 6.07%
Other short-term borrowings ..... 115.9 6.53% 136.6 6.14%
------- -------
$ 377.4 $ 299.9
</TABLE>
Under a revolving credit agreement with a group of banks, GRC may borrow up to
$350.0 million. While at year end no borrowings were outstanding, availability
under the line was reduced by $132.6 million of commercial paper outstanding.
GRC also had borrowings of $115.0 million under unsecured money market lines at
December 31, 1999.
GATX Capital and one of its wholly owned subsidiaries have commitments under
credit agreements with a group of banks for revolving credit loans totaling
$345.0 million of which $216.1 million was available at December 31, 1999;
availability under the line was reduced by $128.9 million of commercial paper
outstanding.
Both GRC'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 GRC and GATX Capital met
all credit agreement requirements at December 31, 1999.
Interest expense on short-term debt was $25.1 million in 1999, $23.5 million in
1998, and $24.0 million in 1997.
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 1999 1998
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Variable rate:
Term notes ................................ 5.25%-6.92% 2001-2004 $ 388.0 $ 195.7
Nonrecourse obligations ................... 6.19%-8.25% 2000-2004 28.7 34.3
----------- --------- --------- ---------
416.7 230.0
Fixed rate:
Term notes................................. 5.81%-10.45% 2000-2012 2,309.8 1,887.7
Nonrecourse obligations.................... 6.28%-10.00% 2003-2013 435.1 417.6
Industrial revenue bonds................... 6.63%-7.30% 2019-2024 87.9 87.9
--------- ---------
2,832.8 2,393.2
----------- --------- --------- ---------
$ 3,249.5 $ 2,623.2
</TABLE>
Maturities of GATX's long-term debt as of December 31, 1999 for the next five
years were (in millions):
<TABLE>
<CAPTION>
MATURITIES
<S> <C>
2000 ......... $607.6
2001 ......... 426.5
2002 ......... 351.6
2003 ......... 378.0
2004 ......... 291.5
------
</TABLE>
<PAGE> 30
At December 31, 1999, certain technology assets, aircraft, railcars,
cogeneration facilities and warehouse equipment with a net carrying value of
$488.8 million were pledged as collateral for $417.1 million of notes and bonds.
Interest cost incurred on long-term debt, net of capitalized interest, was
$191.9 million in 1999, $194.9 million in 1998, and $180.8 million in 1997.
Interest cost capitalized as part of the cost of construction of major assets
was $4.6 million in 1999, $3.3 million in 1998, and $2.5 million in 1997.
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, 1999, 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 ...... $ 595.2 4.80-6.83% LIBOR 2000-2005
GATX pays floating, receives fixed ...... 692.0 LIBOR-LIBOR+.75% 5.41-7.65% 2000-2008
---------- --------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY SWAPS RECEIVE DELIVER MATURITY
------- ------- --------
<S> <C> <C> <C>
Canadian dollar swap ..... $115.0 C$156.2 2011
Deutschemark swap ........ $ 40.5 72.5DM 2002
------ ------- ----
</TABLE>
<TABLE>
<CAPTION>
CURRENCY FORWARDS RECEIVE DELIVER MATURITY
------- ------- --------
<S> <C> <C> <C>
Canadian dollar forward .... C$4.9 $ 3.3 2000
Deutschemark forward ....... $6.3 11.8DM 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, 1998 ...... $ 752.6 $ 690.0
Additions ....................... 370.2 30.0
Maturities ...................... (350.0) (18.0)
------- -------
Balance at December 31, 1998 .... 772.8 702.0
Additions ....................... 85.3 --
Maturities ...................... (262.9) (10.0)
------- -------
Balance at December 31, 1999 .... $ 595.2 $ 692.0
</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
GRC, 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 GRC's long-term fixed rate debt to debt
with maturities of three months to five years. Through the swap program, changes
in GRC'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.
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, 1999, GATX would have
received $4.9 million if the swaps were terminated; GATX would have received
$36.6 million if the swaps were terminated at December 31, 1998.
GATX has entered into currency swaps and forwards to hedge $115.0 million in
debt obligations at its Canadian subsidiaries and $46.8 million in debt
obligations associated with a German joint venture. The fair market value of its
currency swap and forward agreements is
<PAGE> 31
an estimate of the amount the company would receive or pay to terminate those
agreements. If the swaps and forwards were terminated, GATX would have received
$5.7 million at December 31, 1999 or $20.9 million at December 31, 1998.
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. 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 1999 1998
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Secured loans-fixed ..... $ 292.2 $ 290.1 $ 222.8 $ 219.5
Long-term debt-fixed .... 2,832.8 2,769.4 2,393.2 2,470.4
</TABLE>
<PAGE> 32
NOTE J--PENSION AND OTHER POSTRETIREMENT BENEFITS
GATX and certain of its subsidiaries maintain noncontributory defined benefit
pension plans covering their respective employees. Benefits payable under the
pension plans are based on years of service and/or final average salary. The
funding policy for the pension plans is based on an actuarially determined cost
method allowable under Internal Revenue Service regulations.
In addition to the pension plans, GATX's other postretirement plans provide
health care, life insurance and other benefits for certain retired employees who
meet established criteria. Most domestic employees are eligible for health care
and life insurance benefits if they retire from GATX with immediate pension
benefits under the GATX plan. The plans are either contributory or
noncontributory, depending on various factors.
The following tables set forth pension and other postretirement obligations and
plan assets (in millions) as of December 31:
<TABLE>
<CAPTION>
PENSION BENEFITS RETIREE HEALTH AND LIFE
-------------------- -----------------------
1999 1998 1999 1998
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period ........ $ 304.6 $ 276.1 $ 68.4 $ 68.8
Service cost ..................................... 7.4 5.9 .7 .5
Interest cost .................................... 20.6 20.4 4.6 4.8
Plan amendments .................................. -- (.6) -- --
Actuarial loss (gain) ............................ 1.6 24.8 1.6 (.5)
Benefits paid .................................... (22.0) (22.0) (6.6) (6.5)
Curtailments ..................................... -- -- -- 1.3
------- ------- ------- -------
Benefit obligation at end of period .............. $ 312.2 $ 304.6 $ 68.7 $ 68.4
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS RETIREE HEALTH AND LIFE
-------------------- -----------------------
1999 1998 1999 1998
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Change in fair value of plan assets:
Plan assets at beginning of period ............... $ 325.8 $ 299.1 $ -- $ --
Actual return on plan assets ..................... 49.2 44.4 -- --
Company contributions ............................ .5 4.3 6.6 6.5
Benefits paid .................................... (22.0) (22.0) (6.6) (6.5)
------- ------- ------- -------
Plan assets at end of period ..................... $ 353.5 $ 325.8 $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS RETIREE HEALTH AND LIFE
------------------- -----------------------
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
Funded status:
Funded status of the plan ......................... $ 41.3 $ 21.2 $(68.7) $(68.4)
Unrecognized net gain ............................. (46.9) (23.0) (9.4) (12.1)
Unrecognized prior service cost ................... 1.8 2.1 -- --
Unrecognized net transition (asset) obligation .... (.2) (.3) .4 .5
------ ------ ------ ------
Accrued cost ...................................... $ (4.0) $ -- $(77.7) $(80.0)
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS RETIREE HEALTH AND LIFE
------------------ -----------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Amount recognized:
Prepaid benefit cost ............................. $ 3.6 $ 6.7 $ -- $ --
Accrued benefit liability ........................ (9.3) (8.4) (78.1) (80.5)
Intangible asset ................................. 1.7 1.7 .4 .5
------ ------ ------ ------
Total recognized ................................. $ (4.0) $ -- $(77.7) $(80.0)
</TABLE>
<PAGE> 33
The components of pension and other postretirement benefit costs are as follows
(in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS RETIREE HEALTH AND LIFE
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost .............................. $ 7.4 $ 5.9 $ 5.8 $ .7 $ .5 $ .5
Interest cost ............................. 20.6 20.4 20.0 4.6 4.8 5.1
Expected return on plan assets ............ (23.9) (22.6) (21.5) -- -- --
Amortization of:
Unrecognized prior service cost .......... .4 .4 .4 -- -- --
Unrecognized net loss (gain) ............. .2 .1 .1 (.4) (.6) (.5)
Unrecognized net (asset) obligation ...... (.1) -- (.1) .1 -- --
Recognized gain due to
settlement or curtailment ............... -- -- (.7) -- -- --
Recognized special termination
benefits expense ........................ -- -- 3.2 -- -- 1.1
------ ------ ------ ------ ------ ------
Net costs ................................. $ 4.6 $ 4.2 $ 7.2 $ 5.0 $ 4.7 $ 6.2
</TABLE>
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
---------------- -----------------------
1999 1998 1999 1998
---- ------ ---- ----
<S> <C> <C> <C> <C>
Discount rate ....................... 7.00% 7.00% 7.00% 7.00%
Expected return on plan assets ...... 8.75% 8.75% n/a n/a
Rate of compensation increases ...... 5.00% 5.00% 5.00% 5.00%
---- ---- ---- ----
</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 1999 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
contributions to such plans were (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Contributions to multi-employer pension plans .... $ .5 $ .6 $1.8
Contributions to 401(k) plans .................... 4.3 4.2 4.0
----- ---- ----
</TABLE>
<PAGE> 34
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 1999 1998
------- -------
<S> <C> <C>
Deferred tax liabilities:
Book/tax basis differences due to depreciation ......................................... $ 345.6 $ 336.9
Leveraged leases ....................................................................... 58.2 39.1
Investment in joint ventures ........................................................... 101.8 69.0
Lease accounting (other than leveraged) ................................................ 99.1 81.2
Other .................................................................................. 68.9 67.7
------- -------
Total deferred tax liabilities ....................................................... 673.6 593.9
Deferred tax assets:
Alternative minimum tax credit ......................................................... 64.3 52.8
Accruals not currently deductible for tax purposes ..................................... 44.8 46.9
Allowance for possible losses .......................................................... 45.1 52.6
Postretirement benefits other than pensions ............................................ 27.3 27.7
Other .................................................................................. 34.9 21.3
------- -------
Total deferred tax assets ............................................................ 216.4 201.3
------- -------
Net deferred tax liabilities ......................................................... $ 457.2 $ 392.6
------- -------
</TABLE>
At December 31, 1999, GATX had an alternative minimum tax credit of $64.3
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 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current-
Domestic:
Federal ..................... $ 23.5 $ 26.2 $ 28.0
State and local ............. 5.3 3.2 1.1
------- ------- -------
28.8 29.4 29.1
Foreign ....................... 11.3 6.1 3.9
------- ------- -------
40.1 35.5 33.0
Deferred-
Domestic:
Federal ..................... 47.3 43.2 (35.9)
State and local ............. 5.8 8.6 2.2
------- ------- -------
53.1 51.8 (33.7)
Foreign ....................... 9.4 12.6 13.4
------- ------- -------
62.5 64.4 (20.3)
------- ------- -------
Income tax expense (benefit) .... $ 102.6 $ 99.9 $ 12.7
------- ------- -------
Income taxes paid ............... $ 38.6 $ 33.7 $ 35.5
------- ------- -------
</TABLE>
<PAGE> 35
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 1999 1998 1997 1997(A)
---- ---- ----- -------
<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 ..... (.6) (.9) 6.0 (1.2)
State income taxes ................. 2.8 3.3 (15.9) 3.3
1997 restructuring charges ......... -- -- (43.6) --
Foreign income ..................... 1.8 2.9 (5.2) 1.1
Goodwill amortization .............. .6 1.8 (4.6) .9
Minority interest .................. (.1) -- (1.0) .2
Other .............................. .9 1.0 (4.1) .8
---- ---- ----- ----
Effective income tax rate ............ 40.4% 43.1% (33.4)% 40.1%
</TABLE>
(A) Before restructuring charges
NOTE L--SHAREHOLDERS' EQUITY
In 1998, 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. 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 10,084,913 shares of common stock were reserved at December 31, 1999,
for the following:
<TABLE>
<CAPTION>
SHARES
----------
<S> <C>
Conversion of outstanding preferred stock ...... 124,098
Incentive compensation programs ................ 6,263,389
Employee service awards ........................ 36,550
Employee stock purchase plan ................... 3,660,876
----------
10,084,913
</TABLE>
During 1997, GATX called for the redemption of all 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
stock.
In an effort to ensure the fair value to all shareholders in the event of an
unsolicited takeover offer for the company, GATX adopted a Shareholders' Rights
Plan in August 1998. Shareholders received a distribution of one right for each
share of the company's common stock held. Initially the rights are represented
by GATX's common stock certificates and are not exercisable. The rights will be
exercisable only if a person acquires or announces a tender offer 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.
NOTE M--INCENTIVE COMPENSATION PLANS
The GATX Corporation 1995 Long Term Incentive Compensation Plan (the 1995 Plan)
contains provisions for the granting of nonqualified stock options, incentive
stock options, stock appreciation rights (SARs), cash and common stock
individual performance units (IPUs), restricted stock rights, restricted common
stock, performance awards and exchange stock options. An aggregate of 5,000,000
shares of common stock may be issued under the 1995 Plan. As of December 31,
1999, 2,338,041 shares are available for issuance under the 1995 Plan.
<PAGE> 36
Nonqualified stock options and incentive stock options may be granted for the
purchase of common stock for periods not longer than ten years from the date of
grant. The exercise price will not be less than the higher of market value at
date of grant or par value of the common stock. All options become exercisable
commencing on a date no earlier than one year from the date of grant.
IPUs may be granted to key employees and, if predetermined performance goals are
met, will be redeemed in cash and common stock, as applicable, with the
redemption value determined in part by the fair market value of the common stock
as of the date of redemption and in part by the extent to which preestablished
performance goals have been achieved. A total of 31,857 IPUs were granted during
1999 and 69,181 IPUs in total were outstanding at the end of the year. In 1999,
19,584 shares of common stock and $.5 million in cash were paid to the
participants in redemption of previously issued IPUs.
Restricted stock rights may be granted to key employees entitling them to
receive a specified number of shares of restricted common stock. The recipients
of restricted common stock are entitled to all dividends and voting rights, but
the shares are not transferable prior to the expiration of a "restriction
period" as determined at the discretion of the Compensation Committee of the
Board of Directors. Performance Awards are granted to employees who have been
granted restricted stock rights or restricted common stock, but these Awards may
not exceed the market value of the restricted common stock when restrictions
lapse. The Performance Awards provide cash payments if certain criteria and
earnings goals are met over a predetermined period. During 1999, one grant of
300 shares of restricted stock was made.
The Exchange Stock Option Program became part of the 1995 Plan in 1999 and
allows key employees to make an irrevocable election to exchange up to 25% of
their pensionable incentive payments for stock options, with a minimum
contribution of $5,000 in any calendar year. These options are valued based on a
percentage of the Black-Sholes value of GATX common stock as specified by the
Compensation Committee of the Board of Directors. Exchange Stock Options are
granted in January and are exercisable immediately following grant thereof. All
Exchange Stock Options will terminate on the tenth anniversary of the date of
grant. The exercise price of the options is the fair market value of the common
stock on the grant date. In January 2000, 77,477 options were granted for the
year 1999.
Under the GATX Employee Stock Purchase Plan, which became effective July 1,
1999, GATX is authorized to issue up to 247,649 shares of common stock to
eligible employees during the calendar year. Such employees may have up to
$10,000 of earnings withheld to purchase GATX common stock. The purchase price
of the stock on the date of exercise is 85% of the lesser of its market price at
the beginning or end of the plan year. In accordance with the plan, GATX sold
approximately 46,600 shares to employees for 1999.
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.
<PAGE> 37
Data with respect to both plans, including the range of exercise prices per
share for 1999 and 1998, are set forth below:
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDER STOCK OPTION PLANS
----------------------------------------------
1999 1998 PRICE PER SHARE
--------- --------- ---------------
<S> <C> <C> <C>
Outstanding at January 1 .............................. 3,388,275 3,321,300 $ 9.97-39.72
Granted ............................................... 591,050 543,350 30.78-39.75
Exercised ............................................. (272,550) (372,849) 9.97-33.47
Canceled .............................................. (55,675) (103,526) 23.94-39.72
--------- --------- ------------
Outstanding at December 31 ............................ 3,651,100 3,388,275 $ 9.97-39.75
--------- --------- ------------
Outstanding at December 31, by year granted:
1989 ............................ -- 47,000 $ 14.97
1990 ............................ 56,000 64,000 9.97
1991 ............................ 168,000 185,500 14.00
1992 ............................ 153,200 154,200 12.75
1993 ............................ 259,800 306,800 18.84
1994 ............................ 372,100 416,700 20.91
1995 ............................ 451,100 501,400 23.78-25.28
1996 ............................ 593,800 639,025 23.16-24.91
1997 ............................ 510,350 550,300 27.44-33.47
1998 ............................ 504,200 523,350 33.38-39.72
1999 ............................ 582,550 -- 30.78-39.75
--------- --------- ------------
Total ................................................. 3,651,100 3,388,275 $ 9.97-39.75
--------- --------- ------------
Options exercisable at December 31 .................... 2,691,175 2,459,525
--------- --------- ------------
Options available for future grant at December 31 ..... 2,388,041 943,000
--------- --------- ------------
</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 measurement date.
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 No. 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 1999, 1998 and 1997: dividend
yield of 3.1%, 3.1% and 2.8%, respectively; volatility factor of the expected
market price of GATX's common stock of .20, .19 and .16, respectively; expected
life of the option of six years, six years and four years, respectively; and
weighted average risk-free interest rate of 6.5%, 4.8% and 5.9%, 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.
<PAGE> 38
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 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Pro forma net income (loss) .............. $ 148.5 $ 129.8 $ (52.2)
Pro forma earnings (loss) per share:
Basic .................................. $ 3.01 $ 2.64 $ (1.30)
Diluted ................................ $ 2.95 $ 2.57 $ (1.30)
-------- -------- --------
</TABLE>
Because SFAS No. 123's provisions are prospective (retroactive application is
prohibited), awards granted prior to 1995 are not to be considered in pro forma
disclosures. Additionally, because options generally are granted late in the
year and vest over a three-year period, the pro forma amounts for 1997 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 19% of total revenues are generated from the transportation or
storage of products for the chemical industry; for similar services, 19% of
revenues are derived from the petroleum industry. 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 12% 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, 1999, GATX and its aircraft joint ventures had commitments of
$1.5 billion for orders and options for interests in 54 new aircraft to be
delivered between 2000 and 2006. GATX also had other firm commitments totaling
$472.1 million, primarily to acquire railcars and other equipment, fund
technology and telecommunications ventures, and to upgrade terminal and repair
facilities.
GATX's subsidiaries issued $381.6 million of residual and rental guarantees at
December 31, 1999. 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. Exposure to GATX's subsidiaries for certain supplier and loan
payment guarantees is mitigated by, among other things, a third party cross
guaranty. Based on known and expected market conditions, management does not
believe that the asset value guarantees will result in any adverse financial
impact to GATX.
<PAGE> 39
GATX's subsidiaries are also parties to letters of credit and bonds totaling
$38.3 million and $23.8 million at December 31, 1999 and 1998, 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, management believes that damages, if
any, required to be paid by GATX and its subsidiaries in the discharge of such
liability could be material to the results of operations for a given quarter or
year but are not likely to be material to GATX's consolidated financial
position.
NOTE O--RESTRUCTURING CHARGES
During 1997, strategic decisions resulted in a $224.8 million ($162.8 million
after-tax) restructuring charge related to ISG. Part of the restructuring charge
was based on the decision to close, sell or revalue certain domestic and foreign
terminal locations to reflect permanent changes in market conditions. Included
in the restructuring charge was a $185.8 million pretax charge ($123.8 million
after-tax) which primarily represented the write-down of asset values with minor
costs related to closure activities. The remaining charge of $39.0 million
represented the write-down of goodwill to reflect the impairment of certain
acquired logistics and warehousing facilities. The carrying values of certain
assets at ISG were written down to fair value as described in Note A.
Subsequently, ISG management acted upon its restructuring plan by divesting
certain domestic and foreign terminal locations, most notably the sale of six of
its wholly owned terminal sites in the United Kingdom.
<PAGE> 40
<TABLE>
<CAPTION>
Consolidated Quarterly
Financial Data (unaudited)
and Common Stock Information
In Millions, Except Per Share Data Ownership Basic Net Diluted Net
Gross Costs and Operating Net Income Income
Income Expenses Income Per Share(A) Per Share(A)
<S> <C> <C> <C> <C> <C>
1999
First Quarter.................................... $ 451.4 $ 327.1 $ 39.2 $ .79 $ .78
Second Quarter .................................. 476.3 345.3 38.1 .77 .75
Third Quarter ................................... 464.4 330.4 42.2 .85 .83
--------- --------- --------- --------- ---------
Fourth Quarter................................... 466.8 344.6 31.8 .65 .64
--------- --------- --------- --------- ---------
Total ........................................... $ 1,858.9 $ 1,347.4 $ 151.3 $ 3.07 $ 3.01
--------- --------- --------- --------- ---------
1998
First Quarter.................................... $ 430.0 $ 310.6 $ 37.4 $ .76 $ .74
Second Quarter .................................. 459.2 342.8 30.8 .63 .61
Third Quarter ................................... 479.9 352.9 38.1 .78 .76
Fourth Quarter .................................. 481.0 362.4 25.6 .52 .51
Total............................................ $ 1,850.1 $ 1,368.7 $ 131.9 $ 2.68 $ 2.62
--------- --------- --------- --------- ---------
</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.
COMMON STOCK INFORMATION GATX common shares are listed on the New York and
Chicago Stock Ex-changes under ticker symbol GMT.
The approximate number of common stock holders of record as of February 18, 2000
was 3,652. The following table shows the reported high and low sales price of
GATX common shares on the New York Stock Exchange, which is the principal market
for GATX shares, and the dividends declared per share:
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
------------------ -------------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1999 1998
First Quarter..................... $39.31 $32.56 First Quarter............ $40.56 $34.00
Second Quarter.................... 40.19 29.75 Second Quarter........... 44.13 38.75
Third Quarter..................... 40.69 30.44 Third Quarter............ 47.56 31.69
Fourth Quarter.................... 35.44 29.25 Fourth Quarter........... 39.00 26.25
Annual Dividends Declared $1.10 Annual Dividends Declared $1.00
----- -----
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
Selected Consolidated
Financial Data
IN MILLIONS, EXCEPT PER SHARE DATA/YEAR ENDED OR AT
DECEMBER 31............................................. 1999 1998 1997(A) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Operations
Gross Income ............................................ $ 1,858.9 $ 1,850.1 $ 1,767.1 $ 1,473.5 $ 1,308.3
Costs and Expenses ...................................... 1,605.0 1,618.3 1,805.3 1,298.3 1,140.7
---------- ---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes ....................... 253.9 231.8 (38.2) 175.2 167.6
Income Taxes ............................................ 102.6 99.9 12.7 72.5 66.8
---------- ---------- ---------- ---------- ----------
Net Income (Loss) ....................................... $ 151.3 $ 131.9 $ (50.9) $ 102.7 $ 100.8
---------- ---------- ---------- ---------- ----------
Per Share Data
Net Income (Loss) Applicable to Common Stock,
as Adjusted............................................ $ 151.2 $ 131.8 $ (57.6) $ 89.5 $ 87.6
Per Share of Common Stock and Common Stock Equivalents:
Net Income (Loss), Basic ................................ $ 3.07 $ 2.68 $ (1.28) $ 2.22 $ 2.19
Shares Used in Computation (in thousands) ............. 49,296 49,178 45,084 40,379 40,005
Per Share Assuming Conversion, Except in 1997,
of All Outstanding Preferred Stock:
Net Income (Loss), Diluted .............................. $ 3.01 $ 2.62 $ (1.28) $ 2.10 $ 2.07
Shares Used in Computation (in thousands) ............. 50,301 50,426 45,084 48,924 48,731
Dividends Declared Per Share of Common Stock ............ $ 1.10 $ 1.00 $ .92 $ .86 $ .80
---------- ---------- ---------- ---------- ----------
Financial Condition
Total Assets ............................................ $ 5,866.8 $ 5,006.8 $ 4,990.2 $ 4,784.1 $ 4,057.8
Total Long-term Debt and Capital Lease Obligations ...... 3,432.6 2,821.7 2,841.7 2,664.1 2,092.5
Shareholders' Equity .................................... 836.0 732.9 655.4 774.9 717.8
Common Shareholders' Equity ............................. 835.4 732.1 654.7 609.2 551.8
Common Shareholders' Equity Per Share ................... 17.17 14.84 13.36 14.79 13.44
---------- ---------- ---------- ---------- ----------
</TABLE>
(A)The 1997 restructuring charge was $224.8 million on a pretax basis, $162.8
million on an after-tax basis.
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS 1998 COMPARED TO 1997
GATX RAIL (RAIL) Rail's gross income of $535 million increased 8.3% from 1997,
with approximately 4,000 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.
Rail's share of its two European affiliates' earnings was $3 million in 1998
compared to $1 million in the prior year. The increase was primarily due to
owning one of the affiliates for an entire year as Rail's interest was acquired
in the fourth quarter of 1997.
Based on the revenues generated by the growing fleet, net income increased 7.0%
to $67 million. Repair costs increased $10 million to support a larger fleet,
but as a percentage of revenues, were consistent with 1997. Selling, general and
administrative expenses increased, primarily to support a major information
systems initiative. Asset ownership costs increased by 6.6% primarily due to an
increase in operating lease expense. Though the fleet grew substantially,
depreciation and interest did not change appreciably from 1997 due to Rail's
continued use of sale-leaseback financing. In 1998, $208 million of railcars
were sold and leased back, and the resultant cost is included in operating lease
expense.
FINANCIAL SERVICES Financial Services' gross income of $730 million increased
$26 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 Financial Services extending $162 million in new loans
in 1998. Asset remarketing income of $93 million exceeded 1997's record $85
million. Asset remarketing, which does not fall evenly from period to period,
includes both gains from the sale of assets out of Financial Services' own
portfolio as well as residual sharing fees from the sale of managed 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 the prior
year.
During 1998, Financial Services continued to emphasize its strategy of joining
with partners to finance and manage assets. Financial Services' share of
earnings in such joint ventures was $46 million in 1998, a 64.2% increase over
the prior year. Most of the increase was attributable to the joint venture
formed with Pitney 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). Financial Services also made incremental investments in
several existing joint ventures to acquire additional aircraft.
Net income for 1998 was $67 million, exceeding 1997 by 8.1%. The earnings were
achieved despite absorbing a $6 million goodwill write-down related to the VAR
sector due to the market difficulties facing the business. Marine operations
contributed $7 million to net income in 1998 versus $8 million in 1997, which
included a $1 million remarketing gain.
Financial Services' allowance for possible losses increased by $8 million to
$130 million, representing 5.9% of net investments, up from 5.4% at the end of
1997. The loss provision for 1998 was consistent with the prior year.
Compared to the prior year, the asset mix of Financial Services' 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.
GATX INTEGRATED SOLTIONS GROUP GATX Integrated Solutions Group's gross income of
$587 million increased by 2.9% over 1997 with new business and growth
initiatives being partially offset by the sale of the Norco, Louisiana, terminal
facility in 1997. For ongoing wholly owned operations, gross income grew by 5.0%
reflecting new business and improved pricing.
In ISG's ongoing bulk liquid terminal and pipeline operation, throughput and
capacity utilization were 531 million barrels and 94% in 1998 compared to 527
million barrels and 92% in 1997. Space utilization for the dry goods integrated
logistics operation remained at 95% in 1998 as it was in 1997.
ISG's joint ventures, which primarily serve the European and Asian markets,
contributed $21 million, up 2.5% from 1997. Results in 1998 were hampered by
unfavorable foreign exchange and the economic downturn in Asia but overall were
comparable to 1997.
During 1997, ISG recorded an after-tax charge of $163 million related to
restructuring and a write-down of goodwill. Specifically, a $124 million
after-tax charge was taken for the sale or closure of certain nonstrategic
terminal locations and other impaired facilities. Also
<PAGE> 43
during 1997, ISG recorded a $39 million after-tax charge for the write-down of
goodwill related to the public warehousing logistics operations.
Net income of $18 million in 1998 increased significantly from 1997's operating
earnings of $9 million (before the $163 million after-tax restructuring charge
and goodwill write-down) based primarily on improving chemical and petroleum
market conditions, benefits from the restructuring, and lower selling, general
and administrative expenses in 1998. Partially offsetting these improvements was
a $3 million write-off for a customer that ceased operations and lower volumes
with certain customers.
CORPORATE AND OTHER Corporate and Other net expense of $18 million in 1998 was
$3 million favorable to 1997 reflecting a decrease in interest expense.
<PAGE> 44
GATX RAIL
HEADQUARTERS
Chicago, Illinois
BUSINESS OFFICES
Valencia, California
Atlanta, Georgia
Chicago, Illinois
Hackensack, New Jersey
Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
Houston, Texas
Mexico City, Mexico
Calgary, Alberta
Toronto, Ontario
Montreal, Quebec
MAJOR SERVICE CENTERS
Colton, California
Waycross, Georgia
East Chicago, Indiana
Hearne, Texas
Tierra Blanca, Mexico
Red Deer, Alberta
Montreal, Quebec
Moose Jaw, Saskatchewan
Sarnia, Ontario
MINI SERVICE CENTERS
Macon, Georgia
Terre Haute, Indiana
Geismar, Louisiana
Plaquemine, Louisiana
Midland, Michigan
Cincinnati, Ohio
Catoosa, Oklahoma
Copper Hill, Tennessee
Freeport, Texas(2)
Cd Valles, Mexico
Coatcacoalcos, Mexico
Guaymas, Mexico
Hibueras, Mexico
Miramar, Mexico
Monterrey, Mexico
Orizaba, Mexico
Tlalnepantla, Mexico
MOBILE SERVICE UNITS
Mobile, Alabama
Colton, California
Lake City, Florida
East Chicago, Indiana
Norco, Louisiana
Carteret, New Jersey
Las Cruces, New Mexico
Albany, New York
Masury, Ohio
Galena Park, Texas
Nederland, Texas
Olympia, Washington
Altamira, Mexico
Coatcacoalcos, Mexico
Guaymas, Mexico
Edmonton, Alberta
Red Deer, Alberta
Vancouver, British Columbia
Montreal, Quebec
Moose Jaw, Saskatchewan
AFFILIATES
Buenos Aires, Argentina
Vienna, Austria
Hamburg, Germany
Zug, Switzerland
<PAGE> 45
FINANCIAL
SERVICES
HEADQUARTERS
San Francisco, California
OFFICES
Burbank, California
Tampa, Florida
Chicago, Illinois
Williamsville, New York
Toledo, Ohio
Sydney, Australia
Toronto, Canada
Blagnac, France
Frankfurt, Germany
Singapore, Republic of Singapore
Tokyo, Japan
AFFILIATES
Sydney, Australia
San Francisco, California
LaGrange, Illinois
Toronto, Ontario
Zug, Switzerland
Elsurce, United Kingdom
Woking, United Kingdom
<PAGE> 46
GATX
INTEGRATED
SOLUTIONS
GROUP
HEADQUARTERS
Chicago, Illinois
WAREHOUSING AND
LOGISTICS LOCATIONS
Conway, Arkansas
Little Rock, Arkansas
Bell, California
Industry, California
Mira Loma, California
Ontario, California
Stockton, California
Walnut, California
Danbury, Connecticut
Jacksonville, Florida
Atlanta, Georgia
Dacula, Georgia
Doraville, Georgia
Duluth, Georgia
Bedford Park, Illinois
Bloomington, Illinois
Bolingbrook, Illinois
Hodgkins, Illinois
Normal, Illinois
Romeoville, Illinois
Woodridge, Illinois
Indianapolis, Indiana
Richmond, Indiana
Seymour, Indiana
Hebron, Kentucky
Shreveport, Louisiana
Elkridge, Maryland
Coloma, Michigan
Grand Rapids, Michigan
Kalamazoo, Michigan
Delisle, Mississippi
Sardis, Mississippi
Berkeley Heights, New Jersey
West Patterson, New Jersey
New York, New York
Syracuse, New York
Greensboro, North Carolina
Winston-Salem, North Carolina
Columbus, Ohio
Grove City, Ohio
Westerville, Ohio
Oklahoma City, Oklahoma
Bedford, Pennsylvania
Exton, Pennsylvania
Langhorn, Pennsylvania
Pottstown, Pennsylvania
Smyrna, Tennessee
Arlington, Texas
Carrollton, Texas
DeSoto, Texas
El Paso, Texas
Grand Prairie, Texas
Greenville, Texas
Clearfield, Utah
Seattle, Washington
Racine, Wisconsin
Sturtevant, Wisconsin
Toronto, Canada
Juarez, Mexico
Mexico City, Mexico
Corby, Northamptonshire
Puerto Rico
WAREHOUSING AND
LOGISTICS AFFILIATES
Los Angeles, California
San Francisco, California
Denver, Colorado
Atlanta, Georgia
Chicago, Illinois
Cranberry, New Jersey
<PAGE> 47
Cincinnati, Ohio
Dallas, Texas
Pacheo, Argentina
Santiago, Chile
San Jose, Costa Rica
TERMINAL LOCATIONS
Carson, California
Richmond, California
San Pedro, California
Orlando, Florida
Tampa, Florida
Argo, Illinois
Carteret, New Jersey
Paulsboro, New Jersey
Portland, Oregon (2)
Philadelphia, Pennsylvania
Galena Park, Texas
Pasadena, Texas
Seattle, Washington
Altamira, Mexico
TERMINAL AFFILIATES
Antwerpen/Lillo, Belgium
Lanshan, China
Kawasaki, Japan
Kobe, Japan
Yokohama, Japan
Kertih, Malaysia
Jurong Town, Singapore
Pulau Busing, Singapore
Barcelona, Spain
Bilboa, Spain
Tarragona, Spain
Valencia, Spain
Seal Sands, United Kingdom
Wymondham, United Kingdom
PIPELINE LOCATIONS
CALNEV PIPELINE
Adelanto, California
Barstow, California
Colton, California
Las Vegas, Nevada
CENTRAL FLORIDA PIPELINE
Orlando, Florida
Tampa, Florida
MANCHESTER JET LINE
Manchester, United Kingdom
PIPELINE AFFILIATE
OLYMPIC PIPELINE
Renton, Washington
DISTILLATE AND BLENDING
DISTRIBUTION AFFILIATE
Houston, Texas
<PAGE> 48
GATX BOARD OF
DIRECTORS
Rod F. Dammeyer
Managing Partner,
Equity Group Corporate
Investments
James M. Denny(2)(3)
Senior Advisor,
William Blair
Capital Partners, LLC
Richard Fairbanks(1)(3)
President and Chief
Executive Officer,
Center for Strategic & International Studies
William C. Foote(1)(3)
Chairman, President and
Chief Executive Officer,
USG Corporation
Deborah M. Fretz1(4)
Senior Vice President,
Lubricants and Logistics,
Sunoco, Inc.
Richard A. Giesen(2)(4)
Chairman and Chief
Executive Officer,
Continental Glass & Plastic, Inc.
Miles L. Marsh(2)(3)
Chairman, President and
Chief Executive Officer,
Fort James Corporation
Michael E. Murphy(2)(4)
Retired: Former Vice Chairman and Chief Administrative Officer,
Sara Lee Corporation
John W. Rogers, Jr.(1)(4)
President and Co-Chief
Investment Officer,
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
<PAGE> 49
GATX OFFICERS
Ronald H. Zech
Chairman, President and
Chief Executive Officer
(Shown on page 2)
David M. Edwards
Senior Vice President
(Shown on page 2)
David B. Anderson
Vice President,
Corporate Development,
General Counsel and
Secretary
Gail L. Duddy
Vice President,
Human Resources
William J. Hasek
Treasurer
Brian A. Kenney
Vice President and
Chief Financial Officer
Ralph L. O'Hara
Controller
Clifford J. Porzenheim
Vice President,
Corporate Strategy
<PAGE> 50
GATX Corporate Information
ANNUAL MEETING
Friday, April 28, 2000, 9:00 a.m.
Northern Trust Company
Assembly Room, 6th Floor
50 South LaSalle Street
Chicago, Illinois 60675
FINANCIAL INFORMATION
AND PRESS RELEASES
A copy of the company's annual report on Form 10-K for 1999 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]
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 letter, telephone and/or fax.
Requests for information or brochures may be made through GATX's website. Many
GATX publications may be directly viewed or downloaded from it.
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
Email: [email protected]
Automated request line for materials:
(312) 621-6300
<PAGE> 51
Individual investors inquiries:
Tammy McKinney, Investor Relations Coordinator
Telephone: (312) 621-8799
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]
Questions regarding sales, service, lease information, or customer solutions
Email: [email protected]
GATX Rail--(312) 621-6564
Financial Services:
GATX Capital Corporation--(415) 955-3200
American Steamship Company--(716) 635-0222
GATX Integrated Solutions Group--(877) 558-8784
GATX Chemical Logistics, Inc.
GATX Logistics Corporation
GATX Rail Logistics, Inc.
GATX Terminals Corporation
INDEPENDENT AUDITORS
Ernst & Young LLP
<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:
GATX Rail
GATX Rail Corporation, formerly General American Transportation
Corporation, (New York) - includes 6 domestic subsidiaries, 5 foreign
subsidiaries and interests in 2 foreign affiliates.
Financial Services
GATX Financial Services, Inc. (Delaware) - 67 domestic subsidiaries
(which includes GATX Capital Corporation), 20 foreign subsidiaries,
interests in 12 domestic affiliates and 15 foreign affiliates.
American Steamship Company (New York) - 13 domestic subsidiaries.
Integrated Solutions Group
GATX Terminals Corporation (Delaware) - 4 domestic subsidiaries, 3
foreign subsidiaries, interests in 2 domestic affiliates and 13
foreign affiliates.
GATX Logistics, Inc. (Florida) - 10 domestic subsidiaries, 2 foreign
subsidiaries, interests in 1 domestic affiliate and 2 foreign
affiliates.
GATX Chemical Logistics, Inc. (Delaware) - 2 domestic subsidiaries.
<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, (viii) Registration
Statement No. 333-78037 on Form S-8 filed May 7, 1999; (ix) Registration
Statement No. 333-81173 on Form S-8 filed June 21, 1999, and (x) Registration
Statement No. 333-91865 on Form S-8 filed December 1, 1999, of GATX Corporation,
of our report dated January 25, 2000 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, 1999.
ERNST & YOUNG LLP
March 15, 2000
Chicago, Illinois
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 103
<SECURITIES> 0
<RECEIVABLES> 1,157
<ALLOWANCES> 116<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 5,325
<DEPRECIATION> 2,043
<TOTAL-ASSETS> 5,867
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 3,433<F3>
0
0
<COMMON> 35
<OTHER-SE> 801
<TOTAL-LIABILITY-AND-EQUITY> 5,867
<SALES> 0
<TOTAL-REVENUES> 1,773<F4>
<CGS> 5
<TOTAL-COSTS> 592<F5>
<OTHER-EXPENSES> 524<F6>
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 232
<INCOME-PRETAX> 254
<INCOME-TAX> 103
<INCOME-CONTINUING> 151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-BASIC> 3.07
<EPS-DILUTED> 3.01
<FN>
<F1>RECEIVABLES CONSIST OF THREE COMPONENTS: TRADE ACCOUNTS OF 153 MILLION,
FINANCIAL LEASES OF 646 MILLION, AND SECURED LOANS OF 358 MILLION.
<F2>NOT APPLICABLE BECAUSE GATX HAS AN UNCLASSIFIED BALANCE SHEET.
<F3>BONDS CONSIST OF THREE COMPONENTS: RECOURSE LONG-TERM DEBT OF 2,786 MILLION
NONRECOURSE LONG-TERM DEBT OF 464 MILLION AND CAPITAL LEASE OBLIGATIONS OF 183
MILLION.
<F4>REVENUES EXCLUDE SHARE OF AFFILIATES' EARNINGS.
<F5>THIS VALUE REPRESENTS OPERATING EXPENSE ON THE CONSOLIDATED STATEMENTS OF
OPERATIONS.
<F6>THIS VALUE CONSISTS OF TWO COMPONENTS: THE PROVISION FOR DEPRECIATION AND
AMORTIZATION OF 308 MILLION AND OPERATING LEASE EXPENSE OF 216 MILLION ON THE
CONSOLIDATED STATEMENTS OF OPERATIONS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING FINANCIAL DATA SCHEDULES HAVE BEEN RESTATED TO REFLECT A REVISED
INCOME STATEMENT PRESENTATION WHICH INCLUDES CHANGES TO SHARE OF AFFILIATES'
EARNINGS, INVESTMENTS IN AFFILIATED COMPANIES, OPERATING LEASE EXPENSE,
OPERATING EXPENSES, INCOME BEFORE TAXES AND TAXES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999 DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JAN-01-1999 JAN-01-1999 JAN-01-1999
<PERIOD-END> MAR-31-1999 JUN-30-1999 SEP-30-1999 DEC-31-1999
<CASH> 95 82 130 78
<SECURITIES> 0 0 0 0
<RECEIVABLES> 1,082 1,107 1,124 1,219
<ALLOWANCES> 139 142 145 128
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 4,834 4,944 5,043 4,534
<DEPRECIATION> 1,958 1,997 2,017 1,824
<TOTAL-ASSETS> 5,159 5,302 5,444 4,990
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 2,843 2,888 2,874 2,842
0 0 0 0
0 0 0 0
<COMMON> 34 34 34 17
<OTHER-SE> 725 767 788 638
<TOTAL-LIABILITY-AND-EQUITY> 5,159 5,302 5,444 4,990
<SALES> 0 0 0 0
<TOTAL-REVENUES> 4 886 1,326 1,718<F4>
<CGS> 0 0 0 0
<TOTAL-COSTS> 150 312 451 673<F5>
<OTHER-EXPENSES> 123 248 380 446<F6>
<LOSS-PROVISION> 3 6 8 11
<INTEREST-EXPENSE> 55 112 171 222
<INCOME-PRETAX> 67 128 200 (38)
<INCOME-TAX> 28 51 80 (12)
<INCOME-CONTINUING> 39 77 120 (51)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 39 77 120 (51)
<EPS-BASIC> .79 1.56 2.42 (1.28)
<EPS-DILUTED> .78 1.53 2.36 (1.28)
</TABLE>
<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> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 JAN-01-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998 DEC-31-1998 JAN-01-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998 DEC-31-1998
<CASH> 106 136 65 95
<SECURITIES> 0 0 0 0
<RECEIVABLES> 1,162 1,191 1,084 1,074
<ALLOWANCES> 131 136 129 136
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 4,601 4,704 4,557 4,710
<DEPRECIATION> 1,867 1,896 1,908 1,910
<TOTAL-ASSETS> 4,964 51 4,836 5,007
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 2,809 2,759 2,759 2,822
0 0 0 0
0 0 0 0
<COMMON> 17 34 34 34
<OTHER-SE> 668 660 664 699
<TOTAL-LIABILITY-AND-EQUITY> 4,964 51 4,836 5,007
<SALES> 0 0 0 0
<TOTAL-REVENUES> 414 855 1,319 1,781
<CGS> 0 0 0 0
<TOTAL-COSTS> 140 306 481 660
<OTHER-EXPENSES> 113 228 345 474
<LOSS-PROVISION> 3 8 11 15
<INTEREST-EXPENSE> 58 120 180 235
<INCOME-PRETAX> 64 117 182 232
<INCOME-TAX> 27 49 76 100
<INCOME-CONTINUING> 37 68 106 132
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 37 68 106 132
<EPS-BASIC> .76 1.39 2.16 2.68
<EPS-DILUTED> .74 1.35 2.11 2.62
</TABLE>
