BUSINESS
GATX Financial
GATX Financial is a wholly owned subsidiary of
GATX Corporation. GATX Financial is a specialized finance and
leasing company combining asset knowledge and services,
structuring expertise, partnering and capital to provide
business solutions to customers and partners worldwide. We
specialize in railcar and locomotive leasing, aircraft operating
leasing, and financing other large ticket equipment. We provide
our services primarily through three operating segments: GATX
Rail (“Rail”), GATX Air (“Air”) and GATX
Specialty Finance (“Specialty”). Through these
businesses, we combine asset knowledge and services, structuring
expertise, partnering and capital to provide business solutions
to customers and partners worldwide.
We invest in companies and joint ventures that
complement our existing business activities. We partner with
financial institutions and operating companies to improve scale
in certain markets, broaden diversification within an asset
class, and enter new markets.
At the end of 2003, we completed a reorganization
which resulted in changes in management structure and reporting.
As a result, we expanded our operating segments to Rail, Air,
Technology and Specialty. The results of American Steamship
Company (ASC) and certain corporate expenses not allocated
to the segments are included in Other. In June 2004, we sold
substantially all the assets and related non-recourse debt of
Technology, our information technology leasing business, and its
Canadian affiliate to CIT Technology Corporation and CIT
Financial Limited.
At June 30, 2004, we had balance sheet
assets of $5.9 billion, comprised of operating assets such
as railcars and commercial aircraft. In addition to the
$5.9 billion of assets recorded on the balance sheet, we
utilize approximately $1.3 billion of other assets, such as
railcars and aircraft, which were financed with operating leases
and therefore are not recorded on the balance sheet.
GATX Rail
Rail is principally engaged in leasing rail
equipment, including tank cars, freight cars and locomotives.
Rail provides both full service leases and net leases. Under a
full service lease, Rail maintains and services the railcars,
pays ad valorem taxes, and provides other ancillary services.
Under a net lease, the lessee is responsible for maintenance,
insurance and taxes. Rail is headquartered in Chicago, Illinois.
As of December 31, 2003, our owned worldwide fleet,
including Rail and Specialty owned cars, totaled approximately
125,000 railcars. We also had an ownership interest in
approximately 27,000 railcars worldwide through Rail and
Specialty’s investments in affiliated companies as of
December 31, 2003.
As of December 31, 2003, Rail’s North
American fleet consisted of approximately 105,000 railcars,
comprised of 61,000 tank cars and 44,000 freight cars. The cars
in this fleet have depreciable lives of 30 to 38 years and
an average age of approximately 16 years. The utilization
rate of Rail’s North American railcar fleet was 93% at
December 31, 2003. Rail had interests in 6,000 railcars and
800 locomotives through its investments in affiliated companies
in North America as of December 31, 2003.
In North America, Rail typically leases new
railcars for terms of approximately five years. Renewals or
extensions of existing leases are generally for periods ranging
from less than a year to ten years, with an average lease term
of four years. Rail purchases most of its new railcars from a
limited number of manufacturers, including Trinity Industries,
Inc., American Railcar Industries and Union Tank Car Company.
Rail signed agreements with Trinity Industries, Inc. and with
Union Tank Car Company for the purchase of 5,000 and 2,500 newly
manufactured cars, respectively, for orders through 2007. Rail
operates a network of major service centers across North America
supplemented by a number of smaller service centers and a fleet
of service trucks. Additionally, Rail utilizes independent
third-party repair facilities.
Rail’s primary competitors in North America
are Union Tank Car Company, General Electric Railcar Services
Corporation, and various financial companies. At the end of
2003, there were approximately 274,000 tank cars and
1.4 million freight cars owned and leased in North America.
At December 31, 2003, Rail’s owned fleet comprised
approximately 22% of the tank cars in North America and
approximately 3% of the
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freight cars in North America. Principal
competitive factors include price, service, availability and
customer relationships.
In addition to a North American fleet of
approximately 105,000 railcars as of December 31,
2003, Rail has direct or indirect ownership interests in three
European fleets. Rail owns DEC Sp. z.o.o. (“DEC”), a
Polish tank car fleet and fuel distribution company. DEC’s
assets include approximately 10,000 tank cars and a railcar
maintenance network. DEC maintains two business offices and
operates three service centers in Poland. In addition, Rail owns
KVG Kesselwagen Vermietgesellschaft mbH and KVG Kesselwagen
Vermietgesellschaft m.b.h. (collectively, “KVG”), a
leading European tank car lessor. At December 31, 2003, KVG
had approximately 8,000 railcars, a business office in both
Germany and Austria and a service center in Germany. Rail also
owns 37.5% of AAE Cargo AG, a freight car lessor headquartered
in Switzerland that operates approximately 18,000 cars.
Worldwide, Rail provides more than 120 railcar
types used to ship over 650 different commodities, principally
chemicals, petroleum, and food products. During 2003,
approximately 36% of railcar leasing revenue was attributable to
shipments of chemical products, 27% related to shipments of
petroleum products, 14% related to shipments of food, 11%
related to leasing cars to railroads and 12% related to other
revenue sources. Rail leases railcars to over 900 customers,
including major chemical, oil, food, agricultural and railroad
companies. In 2003, no single customer accounted for more than
3% of Rail’s total railcar leasing revenue.
GATX Air
Air is primarily engaged in leasing newer,
narrow-body aircraft widely used by commercial airlines
throughout the world. Air typically enters into net leases under
which the lessee is responsible for maintenance, insurance and
taxes. As of June 30, 2004, Air owned directly or with
others 163 aircraft, 50 of which were wholly-owned with the
balance owned in combination with other investors. All of the
aircraft are in compliance with Stage III noise standards
and together have a weighted average age of approximately five
years based on net book value. Generally, new aircraft have an
estimated useful life of approximately 25 years. Aircraft
currently on lease have an average remaining lease term of
approximately four years. Air typically offers lease terms in
the range of three to five years. Air is headquartered in
San Francisco, California.
Air’s customer base is diversified by
carrier and geographic location with leases to 59 airlines in 28
countries. No single customer contributed more than 8% of
Air’s total revenue or represented more than 9% of
Air’s total net book value in 2003. At December 31,
2003, the countries with significant concentrations of
Air’s commercial aircraft were Turkey, with approximately
$262.9 million or 13% of Air’s total assets of
$2,006.0 million, including off balance sheet assets of
$29.0 million, and Italy with approximately
$238.8 million or 12% of Air’s total assets, including
off balance sheet assets. Air purchases new aircraft from Airbus
Industries and The Boeing Company and also acquires used
aircraft in the secondary market. Air primarily competes with
independent leasing companies, leasing subsidiaries of
commercial banks, and financing arms of equipment manufacturers.
The primary competitive factors are pricing and availability of
aircraft types.
Air also managed 71 aircraft for third parties as
of June 30, 2004. Air’s management role includes
marketing the aircraft, monitoring aircraft maintenance and
condition, and administering the portfolio, including billing
and collecting rents, accounting and tax compliance, reporting
and regulatory filings, purchasing insurance, and lessee credit
evaluation.
GATX Specialty Finance
Specialty is an operating segment comprised of
the former specialty finance and venture finance business units.
At the end of 2002, we announced our intention to curtail
investment in specialty finance and to sell or otherwise run-off
venture finance. Specialty is headquartered in
San Francisco, California.
The Specialty portfolio consists primarily of
leases and loans, frequently including interests in an
asset’s residual value, and joint venture investments
involving a variety of underlying asset types, including marine,
aircraft and other diversified investments. The portfolio of the
discontinued venture business consists primarily
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of loans. Specialty also manages portfolios of
assets for third parties. The majority of these managed assets
are in markets in which we have a high level of expertise such
as aircraft, power generation, rail equipment, and marine
equipment. Specialty generates fee-based income through
transaction structuring and portfolio management services. Fees
are earned at the time a transaction is completed and/or on an
ongoing basis in the case of portfolio management activities.
Specialty also derives remarketing income when assets are sold
from the owned portfolio and residual sharing fees from managed
assets sold on behalf of third parties.
Specialty sold its venture finance portfolios in
the U.K. and Canada in 2003, and continues to run-off the
remaining venture finance portfolio. We anticipate that the
venture finance portfolio will be substantially liquidated by
the end of 2005.
Venture finance-related assets (including
$1.6 million of off balance sheet assets) were
$105.5 million at December 31, 2003, 15% of
Specialty’s total assets of $721.3 million (including
$13.7 million of off balance sheet assets).
The principal competitors of Specialty are
captive leasing companies of equipment manufacturers, leasing
subsidiaries of commercial banks, independent leasing companies,
lease brokers and investment banks.
Discontinued Operations
Technology.
In June
2004, we sold substantially all the assets and related
non-recourse debt of Technology, our information technology
leasing business, and its Canadian affiliate to CIT Technology
Corporation and CIT Financial Limited. Technology was an
independent lessor of information technology (IT) equipment
in North America. In addition, Technology had ownership
interests in technology leasing companies in the United Kingdom
(U.K.) and Germany. Technology assisted its customers in
acquiring IT equipment from leading manufacturers and resellers.
In conjunction with leasing technology equipment, Technology
provided life cycle asset management services to help its
customers acquire, manage, remarket and dispose of IT assets.
Technology’s services included assessing alternative
manufacturers, technologies, products and procurement plans.
Terminals.
We
completed the divestiture of the GATX Terminals (Terminals)
segment in 2002. Terminals provided bulk liquid storage and
pipeline distribution services. As a result, the financial data
for Terminals is presented as discontinued operations for all
periods.
In the first quarter of 2001, we sold the
majority of Terminals’ domestic operations. The sale
included substantially all of Terminals’ domestic
terminaling operations, the Central Florida Pipeline Company and
Calnev Pipe Line Company. Also in the first quarter of 2001, we
sold substantially all of Terminals’ European operations.
In the second and third quarters of 2001, we sold
Terminals’ Asian operations and its interest in a
U.S. distillate and blending distribution affiliate. In the
first quarter of 2002, we sold its interest in a bulk-liquid
storage facility located in Mexico.
Trademarks, Patents and Research
Activities
Patents, trademarks, licenses, and research and
development activities are not material to our businesses taken
as a whole.
Seasonal Nature of Business
Seasonality is not considered significant to the
operations of GFC and its subsidiaries taken as a whole.
Customer Base
Neither GFC as a whole nor any of its business
segments is dependent upon a single customer or concentration
among a few customers.
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Employees
As of December 31, 2003, we and our
subsidiaries had approximately 2,159 employees, of whom 35% were
hourly employees covered by union contracts. This number
includes 181 employees at Technology, which has been
classified as discontinued operations.
Environmental Matters
Our operations, as well as those of our
competitors, are subject to extensive federal, state and local
environmental regulations. These laws cover discharges to
waters, air emissions, toxic substances, and the generation,
handling, storage, transportation and disposal of waste and
hazardous materials. This regulation has the effect of
increasing the cost and liabilities associated with leasing rail
cars. Environmental risks are also inherent in rail operations,
which frequently involve transporting chemicals and other
hazardous materials.
Some of our real estate holdings are and have
been used for industrial or transportation-related purposes or
leased to commercial or industrial companies whose activities
may have resulted in discharges onto the property. As a result,
we are now subject to and will from time to time continue to be
subject to environmental cleanup and enforcement actions. In
particular, the federal Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), also known as the
Superfund law, generally imposes joint and several liability for
cleanup and enforcement costs, without regard to fault or the
legality of the original conduct, on current and former owners
and operators of a site. Accordingly, we may be responsible
under CERCLA and other federal and state statutes for all or
part of the costs to cleanup sites at which certain substances
may have been released by us, our current lessees, former owners
or lessees of properties, or other third parties. Environmental
remediation and other environmental costs are accrued when
considered probable and amounts can be reasonably estimated. As
of December 31, 2003, environmental costs were not material
to our results of operations, financial position or liquidity.
For further discussion, see Note 16 to our consolidated
financial statements that are included elsewhere in this
prospectus.
Properties
Information regarding the location and general
character of certain of our properties is included under
“Business.”
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At December 31, 2003, the locations of our
operations were as follows:
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Rail
Headquarters
Chicago, Illinois
Business Offices
San Francisco, California
Alpharetta, Georgia
Chicago, Illinois
Marlton, New Jersey
Philadelphia, Pennsylvania
Houston, Texas
Calgary, Alberta
Montreal, Quebec
Vienna, Austria
Sydney, Australia
Hamburg, Germany
Mexico City, Mexico
Nowa WieÌWielka, Poland
Warsaw, Poland
Major Service Centers
Colton, California
Waycross, Georgia
Hearne, Texas
Red Deer, Alberta
Sarnia, Ontario
Coteau-du-Lac, Quebec
Montreal, Quebec
Moose Jaw, Saskatchewan
Hanover, Germany
Tierra Blanca, Mexico
Gdansk, Poland
Ostroda, Poland
Slotwiny, Poland
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Mini Service Centers
Macon, Georgia
Terre Haute, Indiana
Geismar, Louisiana
Kansas City, Missouri
Cincinnati, Ohio
Catoosa, Oklahoma
Freeport, Texas
Plantersville, Texas
Czechowice, Poland
Jedlicze, Poland
Plock, Poland
Mobile Service Units
Mobile, Alabama
Colton, California
Lake City, Florida
East Chicago, Indiana
Norco, Louisiana
Sulphur, Louisiana
Albany, New York
Masury, Ohio
Cooper Hill, Tennessee
Galena Park, Texas
Olympia, Washington
Edmonton, Alberta
Red Deer, Alberta
Clarkson, Ontario
Sarnia, Ontario
Montreal, Quebec
Quebec City, Quebec
Vancouver, British Columbia
Tierra Blanca, Mexico
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Affiliates
San Francisco, California
La Grange, Illinois
Kansas City, Missouri
Zug, Switzerland
Air
Headquarters
San Francisco, California
Business Offices
Seattle, Washington
Toulouse, France
Tokyo, Japan
London, United Kingdom
Affiliates
Dublin, Ireland
London, United Kingdom
Technology
Headquarters
Tampa, Florida
Business Offices
Oldsmar, Florida
Tampa, Florida
Affiliates
Bad Homburg, Germany
Hertfordshire, United Kingdom
Specialty
Headquarters
San Francisco, California
Business Offices
Lafayette, California
Sydney, Australia
Other Business Offices
Williamsville, New York
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Legal Proceedings
On May 25, 2001, a suit was filed in Civil
District Court for the Parish of Orleans, State of Louisiana,
Schneider, et al. vs. CSX Transportation, Inc., Hercules,
Inc., Rhodia, Inc., Oil Mop, L.L.C., The Public Belt Railroad
Commission for The City of New Orleans, GATX Corporation, GATX
Capital Corporation, The City of New Orleans, and The Alabama
Great Southern Railroad Company, Number 2001-8924. The suit
asserts that on May 25, 2000, a tank car owned by the GATX
Rail division of GFC leaked the fumes of its cargo, dimethyl
sulfide, in a residential area in the western part of the city
of New Orleans and that the tank car, while still leaking, was
subsequently taken by defendant, New Orleans Public Belt
Railroad, to another location in the city of New Orleans, where
it was later repaired. The plaintiffs are seeking compensation
for alleged personal injuries and property damages. The petition
alleges that a class should be certified, but plaintiffs have
not yet moved to have the class certified. Settlement
negotiations are ongoing.
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In March 2001, East European Kolia-System
Financial Consultant S.A. (Kolia) filed a complaint in the
Regional Court (Commercial Division) in Warsaw, Poland against
Dyrekcja Eksploatacji Cystern Sp. z.o.o. (DEC), an
indirect wholly owned subsidiary of GFC, alleging damages of
approximately $52 million arising out of the unlawful
taking over by DEC in August of 1998, of a 51% interest in
Kolsped Spedytor Miedzynarodwy Sp. z.o.o. (Kolsped), and removal
of valuable property from Kolsped. The complaint was served on
DEC in December 2001. The plaintiff claims that DEC unlawfully
obtained confirmation of satisfaction of a condition precedent
to its purchase of 51% interest in Kolsped, following which it
allegedly mismanaged Kolsped and put it into bankruptcy. The
plaintiff claims to have purchased the same 51% interest in
Kolsped in April of 1999, subsequent to DEC’s alleged
failure to satisfy the condition precedent. GFC purchased DEC in
March 2001 and believes this claim is without merit, and is
vigorously pursuing the defense thereof. DEC has filed a
response denying the allegations set forth in the compliant. The
parties have each confirmed their respective positions in the
case at a hearing held in early March of 2002. At a hearing held
on October 22, 2003, the court rendered a decision in favor
of DEC, dismissing Kolia’s action. On December 9,
2003, the plaintiff filed an appeal of the decision.
On December 29, 2003, a wrongful death
action was filed in the District Court of the State of
Minnesota, County of Hennepin, Fourth Judicial District, MeLea
J. Grabinger, individually, as Personal Representative of the
Estate of John T. Grabinger, and as Representative/ Trustee of
the beneficiaries in the wrongful death action, v. Canadian
Pacific Railway Company, et al. The lawsuit seeks damages
for a derailment on January 18, 2002 of a Canadian Pacific
train containing anhydrous ammonia cars near Minot, North
Dakota. As a result of the derailment, several tank cars
fractured, releasing anhydrous ammonia which formed a vapor
cloud. One person died, as many as 100 people received medical
treatment, of which fifteen were admitted to the hospital, and a
number of others were purportedly affected. The plaintiffs
allege among other things that the incident (i) caused the
wrongful death of her husband/son, and (ii) caused
permanent physical injuries and emotional and physical pain. The
complaint alleges that the incident was proximately caused by
the defendants who are liable under a number of legal theories.
On March 9, 2004, the National Transportation Safety Board
(NTSB) released a synopsis of its anticipated report and
issued its final report shortly thereafter. The report sets
forth a number of conclusions including that the failure of the
track caused the derailment and that the catastrophic fracture
of tank cars increased the severity of the accident. On
June 18, 2004, the plaintiff filed an amended complaint
based on the NTSB findings which added GFC and others as
defendants. Specifically, the allegations against GFC are that
the steel shells of the tank cars were defective and that GFC
knew the cars were vulnerable and nonetheless failed to warn of
the extreme hazard and vulnerability. GFC intends to defend this
suit vigorously. On July 12, 2004, GFC filed a motion to
dismiss this action on the basis that plaintiffs’ claims
are preempted by federal law and that the plaintiffs have failed
to state a claim with respect to certain causes of action. The
court has scheduled a hearing for this motion for
September 22, 2004. On September 8, 2004, the
plaintiffs’ filed another amended complaint seeking to
exclude the tank car companies, including GFC, from counts that
assert liability for ultrahazardous activity, abnormally
dangerous activity and intentional infliction of emotional
distress.
On January 9, 2004, the plaintiffs filed an
almost identical action in United States District Court,
District of North Dakota, Northwest Division. GFC was served on
June 29, 2004. On July 19, 2004, the plaintiffs moved
to dismiss this action without prejudice. In the motion to
dismiss, the plaintiff alleged that the North Dakota action was
brought because the two year statute of limitations was running
and some claims would be barred in North Dakota if the Hennepin
County action were dismissed based upon jurisdiction or venue
changes of the defendants. The Canadian Pacific has opposed this
motion.
GFC has been named as a defendant in eight other
actions all filed in the District Court of the State of
Minnesota, County of Hennepin, Fourth Judicial District, in May
2004. The plaintiffs are all Minot residents who are alleged to
have suffered personal injury and property damage as a
consequence of the derailment. The complaints allege that the
plaintiffs sustained damages including personal injury,
emotional and mental damages, evacuation, shelter in place,
property damage, property value diminution, inconvenience and
insecurity in their property and that the defendants are
responsible under the theories of negligence, nuisance,
trespass, strict liability and negligent and intentional
infliction of emotional distress for the alleged injuries. The
plaintiffs have reserved the right to seek punitive damages. On
July 21, 2004, GFC filed a motion to
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dismiss these actions on the basis that
plaintiffs’ claims are preempted by federal law and that
the plaintiffs have failed to state a claim with respect to
certain causes of action. On September 1, 2004, plaintiffs
in these eight cases dismissed GFC without prejudice.
On July 1, 2004, GFC was served in, Mehl
et al. v. Canadian Pacific Railroad, et al. filed in
the United States District Court, District of North Dakota,
Northwest Division. The complaint alleges that the named
plaintiffs are part of a class that numbers in the hundreds.
This complaint alleges that the plaintiffs sustained damages
including personal injury, emotional and mental damages,
evacuation, shelter in place, property damage, property value
diminution, inconvenience and insecurity in their property and
that the defendants are responsible under the theories of
negligence, nuisance, trespass, strict liability and negligent
and intentional infliction of emotional distress. The class has
not been certified. On September 1, 2004, GFC was dismissed
without prejudice from this case.
GFC has been served only in the cases described
above. There are over 40 other cases arising out of this
derailment pending in the Fourth District Court of the State of
Minnesota, Hennepin County. Thirty-one additional cases were
filed in the same court and then removed to federal court by the
Canadian Pacific in July.
GFC filed a declaratory judgment action in an
effort to obtain an adjudication of its rights for coverage
under policies of insurance issued by various names,
underwriters, managing agents and syndicates at Lloyd’s
London (collectively, the “Insurers”) as more
specifically described in the Settlement Agreement (as
hereinafter defined) in an action captioned GATX Capital
Corporation, et al., v. Certain Underwriters at
Lloyd’s et al., in the California Superior Court in
and for the City and County of San Francisco, Case
No. 307517). The Insurers filed a cross–complaint
against GFC. The parties have reached a compromise and
settlement of the issues which were the subject of such
litigation, and in consequence thereof have entered into a
Confidential Settlement Agreement and Release dated
July 22, 2004 (the “Settlement Agreement”), a
copy of which is filed as an exhibit to the registration
statement of which this prospectus forms a part, pursuant to
which GATX will be paid a total of $45,000,000. This amount will
be recognized as income in the third quarter upon receipt.
GFC and its subsidiaries have been named as
defendants in a number of other legal actions and claims,
various governmental proceedings and private civil suits arising
in the ordinary course of business, including those related to
environmental matters, workers’ compensation claims by GFC
employees and other personal injury claims. Some of the legal
proceedings include claims for punitive as well as compensatory
damages. Several of the Company’s subsidiaries have also
been named as defendants or co-defendants in cases alleging
injury relating to asbestos. In these cases, the plaintiffs seek
an unspecified amount of damages based on common law, statutory
or premises liability or, in the case of ASC, the Jones Act,
which makes limited remedies available to certain maritime
employees. In addition, demand has been made against the Company
under a limited indemnity given in connection with the sale of a
subsidiary with respect to asbestos-related claims filed against
the former subsidiary. The number of these claims and the
corresponding demands for indemnity against the Company
increased in 2003. It is possible that the number of these
claims could continue to grow and that the cost of these claims
could correspondingly increase in the future.
The amounts claimed in some of the above
described proceedings are substantial and the ultimate liability
cannot be determined at this time. However, it is the opinion of
management that amounts, if any, required to be paid by GFC and
its subsidiaries in the discharge of such liabilities are not
likely to be material to GFC’s consolidated financial
position or results of operations. Adverse court rulings or
changes in applicable law could affect claims made against GFC
and its subsidiaries, and increase the number, and change the
nature, of such claims.
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