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Letter From the Chairman

In 2017, GATX invested over $600 million in railcars and related assets around the world, while returning $168 million to shareholders through dividends and share repurchases. We also continued to execute our business unit strategies. For instance, we continued to outperform our competitors in the volatile North American railcar leasing market by tailoring our operating approach to stay ahead of the cycle. We increased our customers’ efficiency by modernizing our railcar fleet in Europe. We also grew our railcar fleet in the higher growth emerging market of India, and we strengthened our Rolls-Royce joint ventures’ leading position in aircraft spare engine leasing. Despite operating in the third year of a railcar leasing market downturn in North America, GATX earned $4.70 per diluted share and produced a 13.1% return on equity, excluding tax adjustments and other items. To put that performance in perspective, our 2017 diluted earnings per share are 35% higher than our diluted earnings per share of $3.49 at the peak of the last business cycle.

In my 2017 Chairman’s letter, I described in detail how GATX thinks about value creation, our growth and return strategies and challenges, and how our Board of Directors reviews and monitors our strategies and execution. In this letter, I will go in a different direction.

This year, I would like to discuss the latest trend in corporate governance. Currently, there is increasing focus on environmental, social, and governance issues (ESG) for public companies. The best example is that the CEO of the largest asset manager in the world recently sent a letter to public company CEOs urging them to account for the societal impact of their businesses. To quote Larry Fink, Chairman and Chief Executive Officer of BlackRock, Inc., “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” .

At GATX, we could not agree more. That is why our vision statement for over a decade has been:
 

“We strive to be recognized as the finest railcar leasing company in the world by our customers, our shareholders, our employees, and the communities where we operate.”

The two statements are strikingly similar, and I thought it would be helpful to provide a few data points that, while not all-inclusive, demonstrate how we are achieving our vision and delivering on our commitments to our various constituencies.
 
Customers Our success in delivering for our customers is best represented by our industry-leading railcar fleet utilization in North America. Standing at over 98% despite the weak market, it clearly demonstrates our customers’ preference for working with GATX versus our competitors. Our top ten customers have been with GATX, on average, for 43 years, which is a testament to the strength of our relationships. Another data point is our customers’ increasing preference to shop their cars in GATX’s owned maintenance network, where we believe the safety, quality, delivery, and cost are superior to our competitors.
 
Shareholders Our success in delivering for our shareholders is best represented by our strong long-term shareholder return. In the decade that our vision has been in place, GATX has outperformed the S&P 500 and the Russell 3000. In addition, 2018 marks the 100th consecutive year in which GATX will pay a dividend to its common shareholders, a record that few companies can match.
 
Employees We constantly work to deliver for our employees by providing an inclusive and engaging work environment. For example, in 2017, our employee engagement score increased for the third consecutive year, and the Chicago Tribune recognized GATX as one of Chicago’s “Top Workplaces.”

Communities where we operate There are countless examples demonstrating how our businesses constantly strive to be recognized as great corporate citizens by the communities where we operate. For example, in 2017, GATX was a repeat recipient of the American Chemistry Council’s (ACC) Responsible Care® Partner of the Year Award. GATX is a Responsible Care® Partner in both the ACC’s program in the United States and the Chemistry Industry Association of Canada's Responsible Care® Program, and we were specifically recognized for our superb performance and safety record in the distribution, transportation, storage, use, treatment, disposal and/or sales and marketing of chemicals. Another example is GATX’s TankTrainer™, a 33,500-gallon tank car outfitted with a variety of fittings, coatings, and configurations that has provided a unique learning experience to more than 17,000 first responders, customers, rail industry participants, and employees since its inception in 1993. In addition, GATX is the largest single corporate donor in Make-A-Wish® Illinois’ history and an important supporter of community efforts such as the Big Shoulders Fund and Breakthrough Shelters in Chicago. Lastly, our American Steamship subsidiary is regularly recognized for its leadership in striving for a ballast water treatment solution on the Great Lakes. For 120 years, GATX employees have been great citizens in their local communities, and we support them in their efforts.

This is some of the evidence supporting how we strive to achieve our vision. Importantly, we are also constantly examining whether we need to evolve our vision to adapt to the opportunities and threats presented by economic, social, and technological trends.

For instance, we are currently studying whether advances in trucking technology, that range from advanced driver assistance systems to platooning to driverless trucking, pose a long-term threat to rail modal share and traffic growth – and also what opportunities this potential shift may provide. Although these advancements may seem a long way off, we invest in rail assets that will last from 30-50 years; thus, we have to immediately consider these trends and adjust our investment and divestiture plans accordingly.

While it would not be wise to lay out a roadmap for our competitors detailing how we will respond to these trends, our constituencies should take faith in the fact that we always consider the long-term impact when we commit our shareholders’ capital. As an example, this long-term focus prevented us from significant railcar investment in crude-by-rail service in 2011-2015, while the rest of the industry chased that short-term trend with long-lived assets – another reason why GATX is outperforming its competitors today.

I will close by repeating our promise from my 2017Chairman’s letter: We promise to our shareholders that while we will always adapt and change to stay ahead of changing market conditions, two key philosophies will never change. First, we will always have a long-term focus on investing that matches the long lives of our assets; second, when we do not honestly believe that we can earn an attractive risk-adjusted return on capital, we will return that excess capital to its owners.

I am confident that the employees of GATX will continue delivering superior returns.

Thank you for your support,. 

Brian A. Kenney
Chairman, President and Chief Executive Officer
GATX Corporation