GATX Annual Report 2003 | Quarterlytics

Plain-text annual report

G N I T E K R A M E R G N I C N A N I F Y T I N U T R O P P O E C N A N E T N I A M D E E N T E S S A s e i t i n u t r o p p O s t e s s A e l p o e P : g n i k n i L GATX Linking: People Assets Opportunities A N N UA L R E P O R T 2 0 0 3 G AT X A N N U A L R E P O R T 2 0 0 3 - Need - G AT X A N N U A L R E P O R T 2 0 0 3 - Need - 1~ Every customer has a speciﬁc need Leasing appears simple – renting equipment to a customer for a fixed period at the right rate. But each customer has speciﬁc needs, and understanding this is key to our success. We have over 900 customers in rail – many are leaders in the chemical, food, and petroleum indus- tries. While they share common traits, each has a different rail ﬂeet, manufacturing facility, product focus, and transportation strategy – the combina- tion of which gives rise to unique requirements. The same concept applies to our nearly 60 air cus- tomers and 750 technology customers. Our ability to anticipate these particular needs, to address and sup- port them with the right assets, sets GATX apart from the competition. Our commitment to treating customers indi- vidually has led to relationships that date back decades. Customers place their trust in GATX, and we take that responsibility very seriously. pg.1 G N I T E K R A M E R G N I C N A N I F Y T I N U T R O P P O E C N A N E T N I A M D E E N T E S S A > d n a t s r e d n u d n a p h s n o i t a l e r i m r e t - g n o l a f o e u l a v e h t e t a i c e r p p a e w , X T A G t A “ ” . s r e m o t s u c r u o y b s u n i d e c a l p t s u r t e h t G AT X A N N U A L R E P O R T 2 0 0 3 - Assets - 2~ Assets are the foundation of our business GATX is built on hard assets: The railcars rolling by at a crossing; the aircraft you board on a flight; your laptop computer. These assets may appear generic, but no two are alike: For example, two air- craft may share the same age and make, but they can have different engines, seat configurations, and maintenance profiles. GATX’s asset expertise draws on these subtle complexities. GATX’s air ﬂeet is comprised primarily of widely used, newer, narrowbody aircraft. Despite unprece- dented market conditions in air, our asset strength is evidenced by high ﬂeet utilization. Likewise, in rail, we have maintained over 90% utilization on our North American ﬂeet in the face of market pressures, and in technology, we have continued to experience strong residual realization. We have a deep understanding of these assets – from the characteristics of each aircraft to the 60 different tank car types to the array of technology equipment options. Our assets provide the ﬂexibility and customization necessary to meet our customers’ ever-changing needs. pg.2 G AT X A N N U A L R E P O R T 2 0 0 3 - Assets - pg.3 G N I T E K R A M E R G N I C N A N I F Y T I N U T R O P P O E C N A N E T N I A M D E E N T E S S A > g n d i i v o r p y b d l r o w e h t n i s t e e ﬂ r a c l i a r d n a r i a t s e g r a l e h t f o e n o t l i u b e W “ ” . e c i v r e s d n a s t e s s a r o i r e p u s G AT X A N N U A L R E P O R T 2 0 0 3 - Financing - 3~ Understanding a customer’s financial objective leads to the right solution Our customers often seek both asset and financial solutions – and that’s where GATX’s unique combi- nation of skills provides tremendous value: We are an asset-based company with strong financial capa- bilities. We work with customers to understand both their asset and financial needs, then develop a cus- tomized solution that meets their objectives while enabling us to grow our business. One such example was our recent purchase of 1,200 covered hopper railcars. One of our key customers was considering strategies for reﬁnancing a portion of its railcar fleet. With an understanding of the customer’s objectives, and a deep knowledge of this railcar type, GATX structured a sale-leaseback under which GATX purchased the cars and immediately placed them on long-term lease with the customer. Our customer gained enhanced ﬁnancial ﬂexibility while we added quality railcars to our ﬂeet. We beneﬁt from drawing on ﬁnancial and asset expertise across GATX. Often this includes our corpo- rate ﬁnance team, which provides analytical and structuring support within GATX and to our cus- tomers and other ﬁnancial institutions. Each opportunity demands a solution to meet our customer’s particular objective, and with our capabilities ranging from standard operating leases to structured approaches, we have the expertise to deﬁne and execute the optimal solution. pg.4 G AT X A N N U A L R E P O R T 2 0 0 3 - Financing - pg.5 G N I T E K R A M E R G N I C N A N I F Y T I N U T R O P P O E C N A N E T N I A M > D E E N T E S S A r u o p l e h o t n o i t u l o s l a i c n a n ﬁ d n a t e s s a t h g i r e h t g n d n ﬁ n i i e v e i l e b e W “ ” . s s e c c u s e v e i h c a d n a w o r g s r e m o t s u c G AT X A N N U A L R E P O R T 2 0 0 3 - Maintenance - pg.6 G AT X A N N U A L R E P O R T 2 0 0 3 - Maintenance - 4~ An unmatched commitment to service sets us apart GATX deals in very long-lived assets. With proper care, railcars can last 30-40 years or more; an aircraft, at least 25 years. Proper maintenance is crucial and requires specialized knowledge, experi- ence and expertise. We are a full service railcar lessor, and our “full service” is extensive. Railcars undergo scheduled repairs, cleaning, lining, painting and inspection at our owned or designated maintenance facilities. A ﬂeet of mobile repair units, strategically located throughout North America, provides rapid mainte- nance whenever and wherever ﬁeld repairs are required, helping customers keep their cars in service. Our North American maintenance network repairs nearly 20,000 cars per year, and mobile repair units make an additional 40,000 maintenance calls. In Europe, we also service 7,000 cars per year. That’s 67,000 railcar touches annually – handled effi- ciently and thoroughly. At GATX, our deﬁnition of full service goes beyond physical maintenance. We also provide cus- tomers with regulatory testing services and training so they are well equipped to address railcar regulations. We focus on the broad spectrum of maintenance services from an owner’s point of view to ensure the safety and reliability of the assets. pg.7 G N I T E K R A M E R G N I C N A N I F Y T I N U T R O P P O E C N A N E T N I A M > D E E N T E S S A g n i v a h f o e c n a t r o p m i e h t s d n a t s r e d n u X T A G , g n i s a e l r a c l i a r n i r e d a e l a s A “ ” . n o i t a r e p o n i r a c e l b a i l e r d n a e f a s a G AT X A N N U A L R E P O R T 2 0 0 3 - Remarketing - pg.8 G AT X A N N U A L R E P O R T 2 0 0 3 - Remarketing - 5~ New opportunities are born from our relationships and market presence Across each business line, we interface with customers and other ﬁnancial institutions every day. In rail, for example, we renew over 20,000 railcar leases each year. This continuous interaction enhances our market knowledge and provides a window into opportunities that competitors often miss. Capitalizing on these opportunities requires the ability to ﬁll multiple roles in the same transaction. An air customer considering a ﬂeet change or upgrade may need to sell existing aircraft as part of the process. Depending on our view of the assets and the market, we can help the airline find a buyer, purchase the aircraft ourselves, or assist in finding and ﬁnancing newer, replacement aircraft. One of our key skills is asset remarketing – whether moving an asset from one customer to another, renewing a lease with an existing customer, or the outright sale of an asset. With 105 years of expe- rience, we understand asset life cycles, and we use this knowledge to maximize the value of assets. Additionally, whether through our business units or our corporate ﬁnance team, our market presence enables us to identify secondary market portfolio acquisitions, third-party asset management mandates, and other advisory services. This enhances our fee base and strengthens our ﬁnancial returns. pg.9 G N I T E K R A M E R > G N I C N A N I F Y T I N U T R O P P O E C N A N E T N I A M D E E N T E S S A e c n a h n e y l e v i t c a o t s e i t i n u t r o p p o r o f k o o l y l l a u n i t n o c e w , s s e n i s u b y a d - o t - y a d r u o n I “ ” . s o i l o f t r o p d e g a n a m d n a d e n w o r u o f o e u l a v e h t G AT X A N N U A L R E P O R T 2 0 0 3 - Opportunities - 6~ We operate on a global scale In each of our markets, we leverage our experience and expertise globally. In Europe, GATX has built a solid platform with an interest in more than 36,000 railcars. Through our operations headquartered in Austria, Germany, and Poland and our joint venture in Switzerland, we are finding opportunities to work with shippers and railroads, providing mod- ern equipment and leasing solutions similar to those we offer in North America. Operating in 28 countries, our air business is primarily international. We have nearly 90% of our ﬂeet on lease outside North America. Our newer fleet of aircraft is well positioned to meet the needs of the international marketplace. We have estab- lished a number of strong international alliances in our technology business. We are also building a number of excellent marine-related joint ventures with shipping operators, further enhancing our long-standing position in this global market. GATX has been active in international markets since the 1920s. By utilizing this experience and capitalizing on our global market presence, we proactively address our customers’ growing inter- national needs. pg.10 G AT X A N N U A L R E P O R T 2 0 0 3 - Opportunities - pg.11 G N I T E K R A M E R G N I C N A N I F Y T I N U T R O P P O > E C N A N E T N I A M D E E N T E S S A s n o i t u l o s e h t d n ﬁ d n a e g n e l l a h c w e n h c a e e c a f o t e c n e i r e p x e t s a v r u o e s u e W “ ” . s r e m o t s u c l a b o l g r u o d n a X T A G t ﬁ e n e b t a h t G AT X A N N U A L R E P O R T 2 0 0 3 - GATX At A Glance - Market Position R A I L Largest tank car lessor in North America. Own and interest in approximately 151,000 railcars worldwide. Full service maintenance network in North America and Europe. Leading service provider to shippers in chemical, petroleum and food industries. Strengths R A I L Over 105 years of industry experience. Expertise in specialized railcars. Growing international presence. Leader in full service leasing. Strong customer relationships. A I R A I R One of the largest aircraft lessors in the world. Own, manage and have an interest in over 230 commercial aircraft. Own 50% interest in one of the world’s largest aircraft engine lessors. Provide third-party asset management, advisory and remarketing services to investors across the globe. Over 35 years of industry experience. Newer, narrowbody ﬂeet with a 5-year weighted average age. Extensive international presence. Sizeable customer base. Managed portfolio of 74 aircraft. T E C H N O L O G Y T E C H N O L O G Y Leading independent information technology (IT) equipment lessor. Approximately 750 cus- tomers in North America. Technology services provided in the U.K. and Germany. Service- intensive business combining IT equipment leas- ing with life cycle management. Over 20 years of industry experience. Diversiﬁed portfolio across customers and equipment types. Vendor independent. Strong, service-based cus- tomer relationships. GATX Corporation is a specialized finance and leasing company combining asset knowledge and services, structuring expertise, partnering, and capital to serve customers and partners worldwide. GATX primarily focuses on leasing railcars and locomotives, commercial jet aircraft, information technology and marine assets. Our vision is to be the premier specialty ﬁnance and leasing company recognized for superior asset expertise, market knowledge, and risk-return man- agement. Our people will set the standard for responsive service, integrity and creativity in providing asset and ﬁnancial solutions to help our customers and partners grow and achieve success. pg.12 G AT X A N N U A L R E P O R T 2 0 0 3 - GATX At A Glance - 2003 Highlights R A I L Improved utilization of North American ﬂeet from 91% to 93%. Acquired 2,400 railcars for North American ﬂeet, including committed purchase program and portfolio acquisitions. Streamlined European ﬂeet operations following acquisition of remaining 51% of KVG in 2002. Strategy R A I L Continue to improve ﬂeet utilization and maximize revenue from existing ﬂeet. Pursue core ﬂeet additions through Committed Purchase Program and ﬂeet acquisitions. Capitalize on opportunities in European platform. A I R A I R Maintained 97% or better utilization on owned ﬂeet. Delivered 6 new aircraft and placed 8 owned and 5 managed renewals. Scheduled aircraft placed with minimal downtime. Completed 11 unscheduled aircraft movements and sold 11 owned and managed aircraft. Continue to maintain high fleet utilization. Effectively manage remarketing and delivery schedule. Expand managed assets and asset advisory services. Pursue selective investment opportunities with partners. T E C H N O L O G Y T E C H N O L O G Y Developed strategic marketing alliances to increase asset base and customer reach. Created Strategic Advisory Services team to provide advi- sory services across the technology spectrum to our customers. Focus on volume generation. Fully utilize new marketing alliances. Improve operating efﬁciency. Pursue portfolio acquisitions aggressively. Seize sizable market opportunity. In December 2002, GATX announced its intent to exit its venture finance business, and curtail new investment in its specialty portfolio. In 2003, ven- ture and specialty were consolidated under the direction of one management team. GATX antici- pates that the venture portfolio will substantially liquidate by mid-2005. New investment in specialty declined in 2003, as planned. GATX anticipates selectively pursuing specialty investments, particularly in marine-related assets, as well as secondary market portfolio acquisitions and third-party asset management mandates, to complement its long-standing positions in these markets. pg.13 G AT X A N N U A L R E P O R T 2 0 0 3 - Financial Highlights - I N M I L L I O N S , E X C E P T P E R S H A R E D ATA Gross income Income from continuing operations before cumulative effect of accounting change Income from discontinued operations Income before cumulative effect of accounting change Net income Per share diluted income before cumulative effect of accounting change Per share diluted income 2003 2002 2001 $ 1,314.5 $ 1,352.9 $ 1,529.7 76.9 – 76.9 76.9 1.56 1.56 $ 29.0 6.2 35.2 0.3 7.5 165.4 172.9 172.9 $ 0.72 – $ 3.51 3.51 – pg.14 G AT X A N N U A L R E P O R T 2 0 0 3 - Chairman’s Letter - D E A R S H A R E H O L D E R S , During the past three years, GATX faced unprecedented operating conditions: The economy weakened, we worked through some investments that hurt our performance, September 11 negatively affected our air business and air partnering strategy, the war in Iraq created uncertainty, and capital market volatility made funding difﬁcult for GATX and many other ﬁnance companies. There is no guide for dealing with these challenges. You draw on experience and rely on instincts; fortunately, I’m surrounded by experienced associates with great instincts. This was evident in 2003 as we stabilized operations and positioned GATX for the long run. We managed our balance sheet and liquidity effectively, thereby providing capacity for increased future investments. Operating efﬁciency improved as we reduced costs across the company. We invested $875 million in our core markets, planting seeds for future growth. Asset utilization improved in rail and remained high in air, a key to increasing future lease rates. Lastly, and importantly, our funding costs decreased dramatically. We enter 2004 more optimistic than we have been in several years. While our earnings improvement will be gradual as we work through the process of resetting lease rates, our markets are improving and we are positioned for the recovery. We took the right path by maintaining a conservative posture during volatile times and exiting non-core markets, but now we will refocus on aggressively pursuing new investment opportunities in our base businesses. In rail, we are seeing an increased ﬂow of opportunities. Our recent acquisition of 1,200 railcars in North America is typical of the type of transaction we expect will augment new car purchases. As the air industry recovers, we will selectively pursue asset acquisitions, on our own and with ﬁnancial partners, and aircraft portfolio management mandates. In technology, we have formed marketing alliances to expand our customer base, and we are in the early stages of beneﬁting from this strategy and a recovery in demand for technology assets. In addition to accelerating our pursuit of new investments, our drive for operational excellence continues. This goes beyond reducing SG&A expenses, where we made signiﬁcant strides in recent years. Lowering per car maintenance expense in rail, for example, and improving back office processes can yield tangible beneﬁts and contribute to our progress. In recent years we made a number of difﬁcult decisions, always with an eye toward a stronger future for GATX. Most visible was a recent decision to reduce our dividend. We weighed many factors, including earnings expectations, investment opportunities, the effect on our shareholders, and a desire to improve our credit rating. We believe the new dividend level better serves the company long term, and we thank those shareholders who supported us during a volatile time for our stock. We have passed through a period of turmoil, and are now focused on building for the future. We have the people, assets, experience, and drive to seize the opportunities before us and build a stronger GATX. Sincerely, RONALD H. ZECH CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER pg.15 G AT X A N N U A L R E P O R T 2 0 0 3 - Directors and Ofﬁcers - GATX Board of Directors GATX Ofﬁcers Rod F. Dammeyer (1,2) President CAC, LLC James M. Denny (2,3) Retired; Former Vice Chairman Sears, Roebuck and Co. Richard Fairbanks (3) Counselor Center for Strategic & International Studies Deborah M. Fretz (1) President and Chief Executive Ofﬁcer Sunoco Logistics Partners, L.P. Miles L. Marsh (2,3) Former Chairman and Chief Executive Ofﬁcer Fort James Corporation Michael E. Murphy (1,2) Retired; Former Vice Chairman and Chief Administrative Ofﬁcer Sara Lee Corporation John W. Rogers, Jr. (1,3) Chairman and Chief Executive Ofﬁcer Ariel Capital Management, Inc. Ronald H. Zech Chairman, President and Chief Executive Ofﬁcer Brian A. Kenney Senior Vice President and Chief Financial Ofﬁcer Ronald J. Ciancio Vice President, General Counsel and Secretary Gail L. Duddy Vice President, Human Resources William M. Muckian Vice President, Controller and Chief Accounting Ofﬁcer William J. Hasek Vice President, Treasurer Robert C. Lyons Vice President, Investor Relations GATX Business Unit Executives David M. Edwards President GATX Rail Ronald H. Zech Chairman, President and Chief Executive Ofﬁcer GATX Corporation Alan C. Coe President GATX Air (1) Member, Audit Committee (2) Member, Compensation Committee (3) Member, Governance Committee Thomas K. McGreal President GATX Technology Services Curt F. Glenn Executive Vice President GATX Specialty Finance pg.16 G AT X A N N U A L R E P O R T 2 0 0 3 - Corporate Information - A N N UA L M E E T I N G : Friday, April 23, 2004, 9:00 a.m., Central Time Northern Trust Company Assembly Room, Sixth Floor 50 South LaSalle Street Chicago, Illinois 60675 F I N A N C I A L I N F OR M AT ION A N D P R E S S R E L E A S E S : A copy of the Company’s Annual Report on Form 10-K for 2003 and selected other information are available without charge. Corporate information and press releases may be found at www.gatx.com. A variety of current and historical financial informa- tion, press releases and photographs are available at this site. I N Q U I R I E S : 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: Mellon Investor Services LLC Overpeck Centre 85 Challenge Road Ridgefield Park, New Jersey 07660 Telephone: (866) 767-6259 TDD for Hearing Impaired: (800) 231-5469 Foreign Shareholders: (201) 329-8660 TDD Foreign Shareholders: (201) 329-8354 Internet: www.melloninvestor.com I N F OR M AT ION R E L AT I N G TO S H A R E HOL DE R OW N E R S H I P, D I V I DE N D PAY M E N T S , OR S H A R E T R A N S F E R S : Lisa M. Ibarra, Assistant Secretary Telephone: (312) 621-6603 Fax: (312) 621-6647 E-mail: lisa.ibarra@gatx.com GATX Corporation welcomes and encourages questions and com- ments from its shareholders, potential investors, financial profes- sionals and the public at large. To better serve interested parties, the following GATX personnel may be contacted by letter, telephone, e-mail and/or fax. Requests for information or brochures may be made through GATX’s website, www.gatx.com. Many GATX publications may be directly viewed or downloaded from this site. TO R E Q U E S T P U B L I S H E D F I N A N C I A L I N F OR M AT ION A N D F I N A N C I A L R E P ORT S , C ON TAC T : GATX Corporation Investor Relations Department 500 West Monroe Street Chicago, Illinois 60661-3676 Telephone: (800) 428-8161 E-mail: ir@gatx.com AU TOM AT E D R E Q U E S T L I N E F OR M AT E R I A L S : (312) 621-6300 A N A LY S T S , I N S T I T U T ION A L S H A R E HOL DE R S A N D F I N A N C I A L C OM M U N I T Y P ROF E S S ION A L S : Robert C. Lyons, Vice President, Investor Relations Telephone: (312) 621-6633 Fax: (312) 621-6648 E-mail: robert.lyons@gatx.com Rhonda S. Johnson, Director, Investor Relations Telephone: (415) 955-3211 Fax: (415) 955-3449 E-mail: rhonda.johnson@gatx.com I N D I V I DUA L I N V E S TOR S’ I N Q U I R I E S : Irma Dominguez, Investor Relations Coordinator Telephone: (312) 621-8799 Fax: (312) 621-6648 E-mail: irma.dominguez@gatx.com Q U E S T ION S R EG A R D I N G S A L E S , S E RV I C E , L E A S E I N F OR M AT ION , OR C U S TOM E R S OLU T ION S : GATX Rail: (312) 621-6200 GATX Air: (415) 955-3200 GATX Technology Services: (813) 289-7000 GATX Specialty Finance: (415) 955-3200 I N DE P E N DE N T AU D I TOR S : Ernst & Young LLP F ORWA R D - L O OK I N G S TAT E M E N T S : Certain statements within this document, including but not limited to the Chairman’s Letter, and narrative sections on pages 1-14, may consti- tute forward-looking statements made pursuant to the safe harbor pro- vision of the Private Securities Litigation Reform Act of 1995. These statements are identified by words such as “anticipate,” “believe,” “esti- mate,” “expect,” “intend,” “predict,” or “project” and similar expres- sions. This information may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking state- ments. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assump- tions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Risks and uncertainties include, but are not limited to, general economic condi- tions; aircraft and railcar lease rate and utilization levels; conditions in the capital markets and the potential for a downgrade in GATX Corporation or GATX Financial Corporation’s credit ratings, either of which could have an effect on the Company’s borrowing costs or ability to access the markets for commercial paper or secured and unsecured debt; dynamics affecting customers within the chemical, petroleum and food industries; regulatory rulings that may impact the economic value of assets; competitors in the rail and air markets who may have access to capital at lower costs than GATX; additional potential write- downs and/or provisions within GATX’s portfolio; impaired asset charges; and general market conditions in the rail, air, technology, ven- ture, and other large-ticket industries. l . r e p a p d e c y c e r n o d e t n i r p s i t r o p e r l a u n n a i s h T n h u K a n o M , n a m r e t s e W e i l r a h C , l e b e o B d d o T y b y h p a r g o t o h P i m o c . n o s d d a . w w w i n o s d d A y b n g s e D i G AT X C O R P O R AT I O N 5 0 0 W E S T M O N R O E S T R E E T C H I C AG O , I L L I N O I S 6 0 6 6 1-3 6 7 6 (312) 621-6200 • (800) 428-8161 W W W. G AT X . C OM N Y S E : G M T

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