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I am pleased with the progress GATX made in 2006, but not for the financially-oriented reasons you might
expect. True, earnings per share from continuing operations increased by 36%, our return on equity from
continuing operations moved to 14%, and our stock returned 22% to shareholders. But I expected strong
financial performance given rising asset prices and the strength in our rail and marine markets. What really
excited me in 2006 was the longer term, strategic milestones we achieved. These milestones ranged from
the sale of our Air business to the purchase of a fleet of Great Lakes shipping vessels—to achieving $763
million of disciplined investment volume in a very competitive market. I believe these actions will ensure our
success in the long term—and long term is the way we think at GATX.
Looking ahead, we expect to be operating in strong rail and marine markets in 2007, although the rail market
outlook is cloudier than it was a year ago. Specifically, segments of the North American railcar leasing
market are showing signs of weakness. Within certain freight car types, some competitors are experiencing
lower utilization and have taken delivery of new cars that have been placed into storage. In addition, nearterm
delivery opportunities have materialized for both freight cars and tank cars at some manufacturers. Our
operating metrics remain strong, but we will watch these developments closely for trends that may impact
our business.
Regardless of the market outlook, we worked hard to position GATX to take advantage of opportunities at
each point of the economic cycle. For instance, in the strong rail market of the last two years, we extended
lease term on renewals and pared the fleet of weaker railcar types, all while continuing to provide new
cars to our customers at attractive terms. We also significantly improved our balance sheet and credit
rating, which should enable us to invest aggressively and profitably when asset prices turn down and
investment opportunities become more abundant. In 2006, we increased our investment in foreign rail and
marine markets, and this should continue in the future as we seek to take advantage of changes in global
manufacturing patterns and product movements. All of these steps support our strategy of becoming the
premier global lessor of long-lived, widely-used, service intensive assets that are essential to our customers'
business.
As I mentioned above, I thought this would be a good forum to answer the questions most frequently
asked by our investors.
Why did GATX sell its Air business?
Simply stated, GATX did not have a competitive advantage in the “commodity” business of aircraft leasing.
Scale and cost of capital are two of the most important success factors in this market. The two largest players
in the industry are each AAA rated and have portfolios many times the size of the other aircraft lessors.
Without similar characteristics, GATX simply could not compete effectively and earn an attractive return
for its shareholders—we were essentially similar to all the other marginal investors speculating on aircraft
increasing in value. GATX is most competitive in assets we uniquely understand and that require valuable
services we provide. While rail, marine and industrial equipment possess these qualities, aircraft leasing
offered neither. We should earn a more attractive return by investing in our more service intensive businesses.
Why are you not growing your assets as fast as some competitors?
There are two important points to consider. First, we were quite clear that we had no intention of growing
our Air assets over the last few years, and now we have sold the business. Thus, the correct way to measure
our growth is to look at our continuing asset base—and we grew these assets by 11% in 2006. I am quite
pleased with that performance given rising asset prices and the intense competition for investments in the
secondary market. This brings me to my second point—we will continue to be disciplined in our investment
philosophy. In today's market, we cannot always justify speculative investments given the extremely high
asset prices. One of the most important actions we take when investing in long-lived, widely used assets is to
buy the asset at an attractive and advantaged price. If we are unable to do so, we prefer to (1) wait until the
market rationalizes, (2) fi nd other investment opportunities, or (3) return the capital to shareholders—or a
combination of these options. We will maintain this discipline because we believe it is the best way to earn an
attractive return.
Why don't you increase your leverage?
We received numerous credit rating upgrades during 2006 and into the early part of 2007 and our cost of debt
has significantly improved. However, we failed to achieve the A- rating we sought from one rating agency.
It is now clear to us that achieving this A- rating would be too expensive for our shareholders because we
would have to maintain an inappropriately low leverage ratio. The good news is that with our current ratings,
we believe we can carry significantly higher leverage—how much higher depends on economic conditions
and business performance. However, since we are managing for the long term, it makes no sense to rush out
and immediately lever up the Company—especially at this point in the economic cycle. We like the balanced
approach of disciplined growth in an up market, aggressive growth when asset prices are more attractive, and
a consistent return of capital to our shareholders.
Brian A. Kenney
Chairman and Chief Executive Officer
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