10-K 1 gmt20141231-10k.htm 10-K GMT 20141231-10K



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
Form 10-K
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2014
 
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2328
______________________
GATX Corporation
(Exact name of registrant as specified in its charter)
New York
36-1124040
(State of incorporation)
(I.R.S. Employer Identification No.)
222 West Adams Street
Chicago, IL 60606-5314
(Address of principal executive offices, including zip code)
(312) 621-6200
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class or series
 
   Name of each exchange
   on which registered
Common Stock
 
New York Stock Exchange
Chicago Stock Exchange


Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o     No þ
-
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 þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) 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.  
o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No ¨


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
þ Large accelerated filer     o Accelerated filer     o Non-accelerated filer o Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $3.0 billion as of June 30, 2014.

As of January 31, 2015, 44.3 million common shares were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
GATX’s definitive Proxy Statement to be filed on or about March 13, 2015
PART III






GATX CORPORATION
2014 FORM 10-K
INDEX
Item No.
 
Page No.
Part I
 
Forward-Looking Statements
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
 
 
 
 
 
 
 
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
 
 
 

1


FORWARD-LOOKING STATEMENTS

Forward-looking statements in this report that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements that reflect our current views with respect to, among other things, future events, financial performance and market conditions. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Specific risks and uncertainties include, but are not limited to, (1) changes in regulatory requirements for tank cars carrying crude, ethanol, and other flammable liquids, (2) competitive factors in our primary markets, (3) weak economic conditions, financial market volatility, and other factors that may decrease demand for our assets and services, (4) inability to maintain our assets on lease at satisfactory rates, (5) changes to, or failure to comply with, laws, rules, and regulations applicable to our assets and operations, (6) operational disruption and increased costs associated with compliance maintenance programs and other maintenance initiatives, (7) financial and operational risks associated with long-term railcar purchase commitments, (8) deterioration of conditions in the capital markets, reductions in our credit ratings, or increases in our financing costs, (9) events having an adverse impact on assets, customers, or regions where we have a large investment, (10) decreased demand for certain railcars used in the petroleum industry due to sustained low crude oil prices, (11) risks related to international operations and expansion into new geographic markets, (12) inadequate allowances to cover credit losses in our portfolio, (13) asset impairment charges we may be required to recognize, (14) environmental remediation costs or a negative outcome in pending or threatened litigation, (15) inability to obtain cost-effective insurance, (16) fluctuations in foreign exchange rates, (17) operational and financial risks related to our affiliate investments, (18) reduced opportunities to generate asset remarketing income, (19) failure to successfully negotiate collective bargaining agreements with the unions representing a substantial portion of our employees. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made and are not guarantees of future performance. The Company undertakes no obligation to publicly update or revise any forward-looking statements.

2


PART I

Item 1. Business

GENERAL

GATX Corporation ("GATX", "we,""us,""our," and similar terms), a New York corporation founded in 1898, is the largest independent global railcar lessor, owning fleets in North America, Europe and Asia. In addition, we operate the largest fleet of US-flagged vessels on the Great Lakes and also own and manage domestic and foreign marine assets and other long-lived, widely-used assets. We also invest in joint ventures that complement our existing business activities. We report our financial results through four primary business segments: Rail North America, Rail International, American Steamship Company (“ASC”), and Portfolio Management.
 
The following description of our business should be read in conjunction with the information contained in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 and the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. For geographic and financial information relating to each of our reportable segments, see "Note 22. Foreign Operations" and "Note 24. Financial Data of Business Segments" included with our consolidated financial statements.

At December 31, 2014, we had total assets of $7.6 billion, comprised largely of railcars, marine vessels and joint venture investments. This amount includes $0.6 billion of off-balance-sheet assets, primarily railcars, that were financed with operating leases.

OPERATIONS
GATX RAIL BUSINESS OVERVIEW

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. To achieve this goal, our focus is to maintain a diverse railcar fleet and deliver premium customer service with the highest levels of safety and operational efficiency. Our wholly owned fleet of approximately 149,000 railcars is the largest independent railcar lease fleet in the world. With more than a century of rail industry experience, we offer customers leasing, maintenance, asset, financial, and management expertise. We currently lease tank cars, freight cars, and locomotives in North America, tank cars and freight cars in Europe and freight cars in India. We also have an ownership interest in approximately 2,800 railcars through investments in affiliated companies, and we actively manage approximately 2,200 railcars for other third party owners. We utilize our extensive rail asset knowledge and experience to remarket both wholly owned and managed rail assets. The following table sets forth our worldwide rail fleet data as of December 31, 2014:
 
Tank
Railcars
 
Freight
Railcars (1)
 
Total Fleet
 
Affiliate
Railcars
 
Managed
Railcars
 
Total Railcars
 
Locomotives
North America
59,183

 
67,181

 
126,364

 
2,764

 
2,143

 
131,271

 
603

International
22,174

 
644

 
22,818

 

 
7

 
22,825

 

 
81,357

 
67,825

 
149,182

 
2,764

 
2,150

 
154,096

 
603

__________________
(1) Includes approximately 19,000 boxcars in Rail North America.

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Our rail customers primarily operate in the petroleum, chemical, food/agriculture and transportation industries. Our worldwide railcar fleet consists of diverse railcar types that our customers use to ship approximately 600 different commodities. The following table provides an overview of our railcar types as well as the industries of our customers and the commodities they ship.



RAIL NORTH AMERICA

Rail North America is comprised of our wholly owned operations in the United States, Canada, and Mexico, as well as an affiliate investment. Rail North America primarily provides railcars pursuant to full-service leases under which it maintains the railcars, pays ad valorem taxes and insurance, and provides other ancillary services. These railcars have estimated useful lives of 27 to 42 years and an average age of approximately 19 years. Rail North America has a large and diverse customer base, serving approximately 700 customers. In 2014, no single customer accounted for more than 4% of Rail North America’s total lease revenue, and the top ten customers combined accounted for approximately 20% of Rail North America’s total lease revenue. Rail North America leases new railcars for terms that generally range from five to ten or more years, with renewals of existing leases and assignments generally ranging from three to ten years. The average remaining lease term of the North American fleet was approximately four years as of December 31, 2014. Rail North America’s primary competitors are Union Tank Car Company, CIT Group Inc., General Electric Railcar Services Corporation, First Union Rail, Trinity Leasing, American Railcar Leasing, The Greenbrier Companies, and The Andersons, Inc. Rail North America competes on the basis of customer relationships, lease rate, maintenance expertise, service capability, and availability of railcars.


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Rail North America purchases new railcars from a number of manufacturers, including Trinity Industries, National Steel Car Ltd., The Greenbrier Companies, and American Railcar Industries, Inc. We also acquire railcars in the secondary market. During 2014, we acquired more than 18,500 boxcars from General Electric Railcar Services Corporation for approximately $340 million (the "Boxcar Fleet"). In 2011, we entered into an agreement to acquire 12,500 newly built railcars from Trinity Rail Group, LLC ("Trinity"), a subsidiary of Trinity Industries, over a five-year period. As of December 31, 2014, approximately 4,600 railcars remain to be delivered under the agreement. In 2014, we entered into a new long-term supply agreement with Trinity that will take effect in mid-2016, upon the scheduled expiration of the 2011 supply agreement. Under the terms of that agreement, we may order up to 8,950 newly built railcars over a four-year period from March, 2016 through March, 2020. We may order both tank and freight cars; however, the majority of the order will be for tank cars. As part of the agreement, in January, 2017, either party may initiate a review of the contract pricing if it no longer reflects market rates. If the parties cannot agree to revised pricing, the agreement could be terminated.
 
Rail North America also includes a locomotive leasing business, which consisted of 585 older four-axle and 18 six-axle locomotives at December 31, 2014. Locomotive customers are primarily Class I, regional, and short-line railroads and industrial users. Leases are typically net leases with terms that vary from month-to-month to 15 years. As of December 31, 2014, the average remaining lease term of the locomotive fleet was approximately seven years. Rail North America's primary competitors in locomotive leasing are First Union Rail, CIT Group Inc., and Progress Rail Services Corporation. Competitive factors in the market include equipment condition, availability, customer service, and pricing.

Rail North America also selectively remarkets rail assets, including assets managed for third parties and an affiliate. Remarketing activities generate fees and gains which contribute significantly to Rail North America’s segment profit.

Maintenance

Rail North America operates an extensive network of service facilities in the United States and Canada that perform repair, maintenance, modification and regulatory compliance work on the railcar fleet. The maintenance network is dedicated to performing timely, efficient and high quality repair services in order to keep railcars in service for customers. Maintenance services include interior cleaning of railcars, general repairs to the car body and safety appliances, regulatory compliance work, wheelset replacements, exterior blast and painting, and car stenciling. To the extent possible, railcar maintenance is scheduled in a manner that minimizes the amount of time the car is out of service. Rail North America’s maintenance network consists of:
Six major service centers that can complete any repair or modification project.
Five field repair centers that primarily focus on routine cleaning, repair and regulatory compliance services.
Six customer-dedicated sites operating solely within specific customer facilities that offer services tailored to the needs of our customers’ fleets.
Twenty mobile units that travel to many track-side field locations to provide spot repairs and interior cleaning services, avoiding the need to shop a railcar.
The maintenance network is supplemented by a number of preferred third party service centers. In certain cases, we have entered into fixed-capacity contracts with these service centers under which Rail North America has secured access to repair capacity. In 2014, third party service centers accounted for approximately 43% of Rail North America’s service center maintenance costs (excluding the cost of repairs performed by railroads).

In 2014, wholly owned and third party service centers performed an aggregate of approximately 81,000 service events, including multiple independent service events for the same car.

Our maintenance activities are substantially dedicated to servicing our wholly owned railcar fleet pursuant to the provisions of our lease contracts. Additionally, our customers periodically require services that are not included in the full-service lease agreement, such as repair of railcar damage and, as noted below, we provide repair services to one of our affiliates. Revenue earned from these types of maintenance activities is recorded in other revenue.


5


Affiliates

Adler Funding LLC ("Adler") is a 12.5% owned joint venture that was formed in 2010 as a railcar leasing partnership with UniCredit Bank AG, Sperber Rail Holdings Inc., and LBT Holding Corporation. Rail North America provides lease, maintenance and asset remarketing services to Adler, for which it receives a base service fee and a performance-based asset remarketing fee. As of December 31, 2014, Adler owned approximately 2,800 railcars in North America consisting primarily of freight cars with an average age of approximately eleven years.

Southern Capital Corporation LLC (“SCC”) was a 50% owned joint venture with the Kansas City Southern Railroad, formed in 1996. During 2014, SCC sold substantially all of its remaining railcars and locomotives.

RAIL INTERNATIONAL

Rail International is comprised of our wholly owned European operations ("GATX Rail Europe" or "GRE") and a recently established railcar leasing business in India ("Rail India"), as well as one development stage affiliate in China. GRE leases railcars to customers throughout Europe pursuant to full-service leases under which it maintains the railcars and provides insurance and other ancillary services. These railcars have estimated useful lives of 25 to 35 years and an average age of approximately 19 years. GRE has a diverse customer base with approximately 250 customers. In 2014, two customers each accounted for more than 10% of GRE's total lease revenue and the top ten customers combined accounted for approximately 64% of GRE's total lease revenue. GRE's lease terms generally range from one to ten years and at December 31, 2014, the average remaining lease term of the European fleet was approximately two years. GRE competes principally on the basis of customer relationships, lease rate, maintenance expertise, service capacity, and availability of railcars. Its primary competitors are VTG Aktiengesellschaft, the Ermewa Group, and Nacco, a subsidiary of CIT Group Inc.

GRE acquires new railcars primarily from Astra Rail Industries S.R.L. and Feldbinder Spezialfahrzeugwerke GmBH. Additionally, GRE's Ostróda, Poland maintenance facility assembles several hundred tank cars each year. As of December 31, 2014, GRE has commitments to acquire approximately 1,000 newly manufactured railcars to be delivered in 2015, of which 300 may be canceled at GRE's discretion.

Rail India began operations in 2012 and was the first leasing company registered under the Indian Railways Wagon Leasing Scheme. In 2014, Rail India focused on pursuing investment opportunities in new and existing flat wagons, and developing relationships with customers, suppliers and the Indian Railways. In 2015, Rail India expects to continue to pursue investment opportunities and grow its fleet of wagons.

Maintenance

GRE operates service centers in Hannover, Germany and Ostróda, Poland that perform significant repairs, regulatory compliance and modernization work for owned railcars. These service centers are supplemented by a number of third party repair facilities, which in 2014 accounted for approximately 39% of GRE's fleet repair costs.

In India, all railcar maintenance is performed by the Indian Railways or a third party service provider retained by the Indian Railways.

Similar to our Rail North America segment, customers periodically require repair services that are not included in the full-service lease agreement. For GRE, these services are generally related to the repair of damages by customers and railways. Revenue earned from these maintenance activities is recorded in other revenue.

Rail International Affiliates

In 2012, IMC-GATX Financial Leasing (Shanghai) Co., Ltd. (“IMC-GATX China”) was established as a 50% owned China-based joint venture between us and IMC Pan Asia Alliance Group (“IMC”). IMC is a well-established shipping enterprise with experience operating in China and is also our partner in a marine joint venture. The primary objective of IMC-GATX China is to establish a rail leasing business in China, if that market develops.

We previously owned a 37.5% interest in Ahaus Alstätter Eisenbahn Cargo AG (“AAE”), a Switzerland-based freight railcar leasing affiliate. During 2013, we sold our interest to our partner, Ahaus Alstätter Eisenbahn Holding AG.

6




ASC

ASC operates the largest fleet of US-flagged vessels on the Great Lakes and strives to attain the highest levels of delivery efficiency, safety and environmental responsibility. ASC provides waterborne transportation of dry bulk commodities such as iron ore, coal, limestone aggregates and metallurgical limestone, which serve end markets that include steel makers, domestic automobile manufacturing, electricity generation and non-residential construction. Customer service, primarily in the form of scheduling flexibility, reliability and operating safety, is the key to ASC’s success. ASC’s sailing season generally runs from April 1 through December 31; however, depending on customer demand and weather conditions, certain vessels may commence operations during March and continue to operate into January of the following year.

At December 31, 2014, ASC’s fleet consisted of 17 vessels with a net book value of $231.0 million and $11.7 million of off-balance-sheet assets. Fourteen of the vessels are diesel powered, have an average age of 37 years, and estimated useful lives of 65 years. Two steam powered vessels were built in the 1940s and 1950s and have estimated remaining useful lives of five years. The other vessel in ASC's fleet is a diesel-powered articulated tug-barge, which is leased by ASC under an operating lease that expires in 2017. Sixteen of ASC’s vessels are generally available for both service contract and spot business; the remaining vessel has dedicated service pursuant to a time charter agreement that is scheduled to expire following the 2015 sailing season. ASC’s vessels operate exclusively in the fresh water of the Great Lakes and as a result, with proper maintenance and periodic refurbishment, may achieve extended service well beyond the useful life estimates.


All of ASC’s vessels are equipped with self-unloading equipment, enabling them to discharge dry bulk cargo without assistance from shore-side equipment or personnel. This equipment enables the vessels to operate twenty-four hours a day, seven days a week. ASC’s vessels are capable of transporting and unloading almost any free flowing, dry bulk commodity. In 2014, ASC served 29 customers with the top five customers comprising 79% of total revenue.


7


The following table sets forth ASC's fleet as of December 31, 2014:
Great Lakes Vessels
 
Length (feet)
 
Capacity (gross tons)
M/V American Spirit
 
1004'
 
62,400
M/V Burns Harbor
 
1000'
 
80,900
M/V Indiana Harbor
 
1000'
 
80,900
M/V Walter J. McCarthy, Jr
 
1000'
 
80,900
M/V American Century
 
1000'
 
78,850
M/V American Integrity
 
1000'
 
78,850
M/V St. Clair
 
770'
 
44,800
M/V American Mariner
 
730'
 
37,300
M/V H. Lee White
 
704'
 
35,400
M/V John J. Boland
 
680'
 
34,000
M/V Adam E. Cornelius
 
680'
 
29,200
M/V Buffalo
 
634'-10"
 
24,300
M/V Sam Laud
 
634'-10"
 
24,300
M/V American Courage
 
634'-10"
 
23,800
Str. American Victory
 
730'
 
26,300
Str. American Valor
 
767'
 
25,500
Ken Boothe and Lakes Contender
 
740'
 
34,000

ASC’s vessels operate pursuant to customer contracts that stipulate freight volume and may also be supplemented with additional spot volume opportunities. In 2014, ASC operated 15 vessels and carried 30.5 million net tons of cargo. The number of vessels deployed by ASC in any given year is dependent on customer volume requirements.

ASC’s primary competitors on the Great Lakes are Interlake Steamship Company, Great Lakes Fleet, Inc., Grand River Navigation, Central Marine Logistics, and VanEnkevort Tug and Barge. ASC principally competes on the basis of service capabilities, customer relationships and price.

The United States shipping industry is subject to the Jones Act, which requires all commercial vessels transporting goods between US ports to be built, owned, operated and manned by US citizens and registered under the US flag.


8


PORTFOLIO MANAGEMENT

Portfolio Management generates leasing, marine operating, asset remarketing and management fee income through a collection of diversified wholly owned assets and joint venture investments.

The following table sets forth the approximate net book value of Portfolio Management’s assets as of December 31 (in millions):

 
 
Owned Assets
 
Affiliate Investments
 
Managed
Assets
2014
$
474.6

 
$
338.7

 
$
64.1

2013
536.0

 
320.9

 
125.3

2012
419.5

 
377.9

 
143.2


Owned and Managed Assets

Portfolio Management's wholly owned portfolio consists of assets subject to operating and finance leases, marine assets operating in pooling arrangements and secured loans. Leased assets primarily include inland marine equipment. Pooled marine assets include multi-gas vessels, chemical parcel tankers and inland barges. Owned assets have estimated useful lives of 5 to 30 years and are either placed with customers pursuant to operating or finance leases, which have scheduled expirations ranging from 2015 to 2027, or in the case of certain marine assets, are operated by a service provider under contractual pooling agreements. Portfolio Management remarkets these assets, generating portfolio proceeds and gains on asset dispositions.

Portfolio Management also manages portfolios of assets for third parties which generate fee and residual sharing income through portfolio administration and remarketing of these assets.

Affiliates

Portfolio Management's investments in affiliated companies primarily include aircraft engine leasing and shipping operations. Portfolio Management's joint venture partners are typically well-established companies with extensive experience in their respective markets.

The Rolls-Royce & Partners Finance companies (collectively the “RRPF affiliates”) are a collection of fourteen 50% owned domestic and foreign joint ventures with Rolls-Royce plc (or affiliates thereof, collectively “Rolls-Royce”), a leading manufacturer of commercial aircraft jet engines. The RRPF affiliates are primarily engaged in two business activities: lease financing of aircraft engines to a diverse group of commercial aircraft operators worldwide and sale-leaseback financing of aircraft engines to Rolls-Royce for use in their engine maintenance programs. As of December 31, 2014, the RRPF affiliates, in aggregate, owned 433 engines, of which 217 were on lease to Rolls-Royce. These aircraft engines are generally depreciated over a useful life of 25 years when new and, depending on actual hours of

9


usage and with proper maintenance, may achieve extended service well beyond the useful life estimate. As of December 31, 2014, the average age of these engines was approximately 11 years. Lease terms vary but typically range from 7 to 10 years. Rolls-Royce acts as manager for each of the RRPF affiliates and also performs substantially all required maintenance activities.

Cardinal Marine Investments LLC (“Cardinal Marine”) is a 50% owned marine joint venture with IMC Holdings, a subsidiary of IMC. IMC is a leading Asia-focused integrated maritime and industrial solutions provider with diversified interests in dry and liquid bulk shipping, ship and crew management, offshore and marine engineering, oil and gas assets, and services and logistics. Cardinal Marine owns five chemical parcel tankers (each with 45,000 dead weight tons (“dwt”) carrying capacity) that operate under a pooling arrangement with IMC's other chemical tankers in support of the movement of liquid bulk chemicals in the Middle East Gulf/Far East and US Gulf/Far East trades.

Intermodal Investment Funds V and VII were each 50% owned joint ventures with DVB Bank SE. The affiliates were formed to finance shipping containers, which were on direct finance leases to third parties. In 2014, we sold our investments in these joint ventures.

Somargas II Private Limited (“Somargas”) and Singco Gas Pte, Limited (“Singco”) were 35% and 50% owned joint ventures with IM Skaugen ASA (“Skaugen”). Somargas owned six liquid petroleum gas/ethylene vessels (each with 8,500 - 10,000 cubic meters (“cbm”) carrying capacity). Singco owned four liquid petroleum gas/ethylene/LNG vessels (each with 10,000 cbm carrying capacity). In 2013, we sold our interest in Singco and Somargas to Skaugen. In connection with the sale, we received five of the vessels. The vessels continue to operate under a pooling arrangement with Skaugen.

Clipper Third Limited (“Clipper Third”) was a 50% owned joint venture with Clipper Group Invest Ltd. (the “Clipper Group”). Clipper Third supported the worldwide movement of dry bulk products such as grain, cement, coal and steel. In 2012, Clipper Third sold all of its remaining assets and the joint venture was discontinued.

Enerven Compression, LLC (“Enerven”) was a 45.6% owned joint venture with ING Investment Management and Enerven management. Enerven provided natural gas compression equipment leasing through its subsidiary, Enerven Compression Services (“ECS”) and third party maintenance and repair services through its subsidiary, Worldwide Energy Solutions Company (“WESCO”). In 2012, Enerven sold substantially all of its assets, and in 2013 and 2014 remaining contingencies related to the sales were resolved, and the joint venture is in the process of being liquidated.

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

ASC’s fleet is inactive for a significant portion of the first quarter of each year due to the winter conditions on the Great Lakes.

CUSTOMER BASE

GATX, taken as a whole, is not dependent upon a single customer nor does it have any significant customer concentrations. Segment concentrations, if material, are described above.


10


EMPLOYEES AND EMPLOYEE RELATIONS

As of December 31, 2014, we employed 2,213 persons, of whom approximately 40% were union workers covered by collective bargaining agreements.

See "Note 14. Concentrations" in Part II, Item 8 of this Form 10-K for additional information on our employees and concentration of labor force.

ENVIRONMENTAL MATTERS

Our operations, facilities and properties are subject to extensive federal, state, local, and foreign environmental laws and regulations. These laws cover discharges to waters; air emissions; toxic substances; the generation, handling, storage, transportation and disposal of waste and hazardous materials; and the investigation and remediation of contamination. These laws have the effect of increasing the cost and liability associated with leasing and operating assets, and violations can result in significant fines, penalties or other liabilities. Environmental risks and compliance with applicable environmental laws and regulations are inherent in rail operations, which frequently involve transporting chemicals and other hazardous materials.

We are subject to, and may from time to time continue to be subject to, environmental cleanup and enforcement actions in the US and in the foreign countries in which we operate. 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 investigation, cleanup and enforcement costs on current and former owners and operators of a site, without regard to fault or the legality of the original conduct. Accordingly, we have been and may, in the future, be named as a potentially responsible party under CERCLA and other federal, state, local, and foreign laws or regulations for all or a portion of the costs to investigate and clean up sites at which certain contaminants may have been discharged or 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, 2014, environmental costs were not material to our financial position, results of operations or cash flows. For further discussion, see "Note 23. Legal Proceedings and Other Contingencies" in Part II, Item 8 of this Form 10-K.


EXECUTIVE OFFICERS OF THE REGISTRANT

The following information regarding our executive officers is included in Part I in lieu of inclusion in our definitive Proxy Statement:
 
 
Name
 
 
Offices Held
Position Held Since
 
Age
Brian A. Kenney
Chairman, President and Chief Executive Officer
2005
 
55
Robert C. Lyons
Executive Vice President and Chief Financial Officer
2012
 
51
James F. Earl
Executive Vice President and President, Rail International
2012
 
58
Thomas A. Ellman
Executive Vice President and President, Rail North America
2013
 
46
Deborah A. Golden
Executive Vice President, General Counsel and Corporate Secretary
2012
 
60
Michael T. Brooks
Senior Vice President, Operations and Technology
2013
 
45
James M. Conniff
Senior Vice President, Human Resources
2014
 
57
Curt F. Glenn
Senior Vice President, Portfolio Management
2007
 
60
William M. Muckian
Senior Vice President, Controller and Chief Accounting Officer
2007
 
55
Eric D. Harkness
Vice President, Treasurer and Chief Risk Officer
2012
 
42
Paul F. Titterton
Vice President and Chief Commercial Officer
2013
 
39
Jeffery R. Young
Vice President and Chief Tax Officer
2015
 
52

Mr. Kenney has served as Chairman, President and Chief Executive Officer since 2005. Previously, Mr. Kenney served as President from 2004 to 2005, Senior Vice President, Finance and Chief Financial Officer from 2002 to 2004, Vice President, Finance and Chief

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Financial Officer from 1999 to 2002, Vice President, Finance from 1998 to 1999, Vice President and Treasurer from 1997 to 1998, and Treasurer from 1995 to 1996.

Mr. Lyons has served as Executive Vice President and Chief Financial Officer since June 2012. Previously, Mr. Lyons served as Senior Vice President and Chief Financial Officer from 2007 to June 2012, Vice President and Chief Financial Officer from 2004 to 2007, Vice President, Investor Relations from 2000 to 2004, Project Manager, Corporate Finance from 1998 to 2000, and Director of Investor Relations from 1996 to 1998.

Mr. Earl has served as Executive Vice President and President, Rail International since June 2012. In addition, Mr. Earl has served as the Chief Executive Officer of American Steamship Company since June 2012. Previously, Mr. Earl served as Executive Vice President and Chief Operating Officer from 2006 to June 2012, Executive Vice President — Rail from 2004 to 2006, Executive Vice President — Commercial at Rail from 2001 to 2004 and in a variety of increasingly responsible positions in the GATX Capital Rail Group from 1988 to 2001.

Mr. Ellman has served as Executive Vice President and President, Rail North America since June 2013. Previously, Mr. Ellman served as Senior Vice President and Chief Commercial Officer from November 2011 to June 2013, Vice President and Chief Commercial Officer from 2006 to November 2011. Prior to re-joining GATX in 2006, Mr. Ellman served as Senior Vice President and Chief Risk Officer and Senior Vice President, Asset Management of GE Equipment Services, Railcar Services and held various positions at GATX in the GATX Rail Finance Group.

Ms. Golden has served as Executive Vice President, General Counsel and Corporate Secretary since June 2012. Previously, Ms. Golden served as Senior Vice President, General Counsel and Corporate Secretary from 2007 to June 2012. Ms. Golden joined GATX in 2006 as Vice President, General Counsel and Corporate Secretary. Prior to joining GATX, Ms. Golden served as Vice President and General Counsel of Midwest Generation, LLC from 2004 to 2005, Deputy General Counsel, State of Illinois, Office of the Governor from 2003 to 2004 and Assistant General Counsel with Ameritech Corporation/SBC Communications, Inc. from 1997 to 2001.

Mr. Brooks has served as Senior Vice President, Operations and Technology since June 2013. Previously, Mr. Brooks served as Senior Vice President and Chief Information Officer from November 2008 to June 2013. Prior to joining GATX, Mr. Brooks served as Chief Information Officer and Vice President of the retail division of Constellation Energy and held various consulting roles of increasing responsibility with Accenture and Oracle Corporation.

Mr. Conniff was appointed Senior Vice President, Human Resources in December 2014. Previously, Mr. Conniff served as Vice President, Human Resources since 2014 and Senior Director, Benefits and Employee Services since 2008. Mr. Conniff joined GATX in 1981 and has held a variety of positions in finance and human resources.

Mr. Glenn has served as Senior Vice President, Portfolio Management since 2007. Previously, Mr. Glenn served as Vice President, Portfolio Management from 2006 to 2007 and as a GATX Corporation Vice President since 2004 and Executive Vice President of Portfolio Management since 2003. Prior to that, Mr. Glenn served as Senior Vice President and Chief Financial Officer of the GATX Capital Division of GATX Financial Corporation from 2000 to 2003 and in a variety of increasingly responsible positions at GATX Capital from 1980 to 2000.

Mr. Muckian has served as Senior Vice President, Controller and Chief Accounting Officer since 2007. Previously, Mr. Muckian served as Vice President, Controller and Chief Accounting Officer from 2002 to 2007, Controller and Chief Accounting Officer from 2000 to 2002, and Director of Taxes of GATX from 1994 to 2000.

Mr. Harkness has served as Vice President, Treasurer and Chief Risk Officer since October 2012. Previously, Mr. Harkness served as Vice President, Chief Risk Officer from September 2010 to October 2012 and Senior Investment Risk Officer from 2007 to September 2010. Prior to joining GATX, Mr. Harkness served in a variety of positions of increasing responsibility in the financial services industry.

Mr. Titterton has served as Vice President and Chief Commercial Officer since June 2013. Previously, Mr. Titterton served as Vice President and Group Executive, Fleet Management, Marketing and Government Affairs from December 2011 to June 2013, Vice President and Executive Director, Fleet Management from 2008 to 2011, and in a variety of increasingly responsible positions since joining the company in 1997.


12


Mr. Young was elected Vice President and Chief Tax Officer in January 2015. Previously, Mr. Young served as Vice President of Tax from 2007 to January 2015 and as Director of Tax from 2003 to 2007. Prior to joining GATX, Mr. Young spent twenty years in a variety of tax related positions in public accounting and the financial services industry.


AVAILABLE INFORMATION

We make available free of charge at our website, www.gatx.com, our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the US Securities and Exchange Commission (“SEC”). Charters for the Audit Committee, Compensation Committee and Governance Committee of the Board of Directors, the Corporate Governance Guidelines, the Code of Business Conduct and Ethics and the Code of Ethics for Senior Company Officers are posted under Corporate Governance in the Investor Relations section of our website, and are available in print upon request by any shareholder. Within the time period prescribed by SEC and New York Stock Exchange regulations, we will post on our website any amendment to the Code of Ethics for Senior Company Officers and the Code of Business Conduct and Ethics or any waivers thereof. The information on our website is not incorporated by reference into this report.

13


Item 1A.  Risk Factors

Investors should consider the risk factors described below as well as other information contained in this filing or our other filings with the US Securities and Exchange Commission before investing in our securities. If any of the events described in the risk factors below occur, our business, financial condition and results of operations could be adversely affected.

Regulatory authorities in the US and Canada have proposed new rules that would apply to tank cars carrying crude oil, ethanol, and other flammable liquids and any new regulations could negatively impact our tank car fleet in flammable liquids service.

Derailments involving trains carrying crude oil and ethanol have led to increased regulatory scrutiny of railroad operations, shippers’ classification of products, and the tank cars carrying these commodities. Regulatory authorities in the US and Canada have proposed new rules that would require modifications to certain existing tank cars used to transport various flammable liquids, including crude oil and ethanol. While we cannot predict the content of the final rules, the US Department of Transportation is projecting that final rules will be issued in the second quarter of 2015. We are currently assessing the changes to tank car design standards proposed by the Pipeline and Hazardous Materials Safety Administration of the US Department of Transportation ("PHMSA") and Transport Canada ("TC") and evaluating their potential impact on our tank car fleet in flammable liquids service. We have a fleet of more than 126,000 railcars in North America, including approximately 13,600 tank cars currently used to transport flammable liquids, of which approximately 4,900 are moving crude oil and ethanol. The impact of the new rules will vary depending on the age and particular characteristics of each tank car and the commodities that are transported by the tank car. For example, the new regulations may require that tank cars be refurbished or substantially modified if they are to remain engaged in crude, ethanol and other flammable liquid service, and certain cars may need to be retired prior to the end of their previously estimated useful lives. In addition, it is possible that new regulatory requirements for shipping crude, ethanol and other flammable liquids in tank cars may result in our customers’ shifting some the volume of these commodities that currently travel by rail to other modes of transportation, resulting in decreased demand for these tank cars. The additional costs to refurbish or modify certain tank cars and the cost of retiring other tank cars early could have an adverse impact on our business and results of operations.

Weak economic conditions, financial market volatility, and other factors may decrease customer demand for our assets and services and negatively impact our business and results of operations.

We rely on continued demand from our customers to lease our railcars, locomotives, marine assets, and other equipment. Demand for these assets depends on the markets for our customers’ products and services and the strength and growth of their businesses. Some of our customers operate in cyclical markets, such as the steel, chemical, and construction industries, which are susceptible to macroeconomic downturns and may experience significant changes in demand over time. Weakness in certain sectors of the economy in the United States and other parts of the world may make it more difficult for us to lease certain types of railcars that are either returned at the end of a lease term or returned as a result of a customer bankruptcy or default.

In many cases, demand for our assets also depends on our customers’ desire to lease, rather than buy, the assets. Tax and accounting considerations, interest rates, and operational flexibility, among other factors, may influence a customer’s decision to lease or buy assets. We have no control over these external considerations, and changes in these factors, including potential changes to lease accounting rules, could negatively impact demand for our assets held for lease.

Additional factors, such as changes in harvest or production volumes, changes in supply chains, choices in types of transportation assets, availability of substitutes and other operational needs may also influence customer demand for our assets. Demand for our marine assets and shipping services also depends on the factors discussed above. Significant declines in customer demand for our assets and services could adversely affect our financial performance.


14


We may be unable to maintain assets on lease at satisfactory rates.

Our profitability depends on our ability to lease assets at satisfactory rates, sell assets, and to re-lease assets upon lease expiration. Circumstances such as economic downturns, changes in customer behavior, excess capacity in particular railcar types or generally in the marketplace, or other changes in supply or demand can adversely affect asset utilization rates and lease rates. Economic uncertainty or a decline in customer demand for our assets could cause customers to request shorter lease terms and lower lease rates, which may result in a decrease in our asset utilization rate and reduced revenues. Alternatively, customers may seek to lock-in relatively low lease rates for longer terms, which may result in an adverse impact on current or future revenues.

Our rail and marine assets and operations are subject to various laws, rules, and regulations. If these laws rules, and regulations change or we fail to comply with them, it could have a significant negative effect on our business and profitability.

Our rail and marine operations are subject to various laws, rules, and regulations administered by authorities in jurisdictions where we do business. In the United States, our railcar and locomotive fleet and operations are subject to safety, operations, maintenance, and mechanical standards, rules, and regulations enforced by various federal and state agencies and industry organizations, including the US Department of Transportation, the Federal Railroad Administration, PHMSA, TC, and the Association of American Railroads. State agencies regulate some health and safety matters related to rail operations not otherwise preempted by federal law. Our business and railcar and locomotive fleet may be adversely impacted by new rules or regulations, or changes to existing rules or regulations, which could require additional maintenance or substantial modification or refurbishment of our railcars, or could make certain types of railcars inoperable or obsolete or require them to be phased out prior to the end of their useful lives. In addition, violations of these rules and regulations can result in substantial fines and penalties, including potential limitations on operations or forfeitures of assets.

Similarly, our marine assets and operations are subject to rules and regulations relating to safety, US citizen ownership requirements, emissions, ballast discharges, and other environmental and operational matters enforced by various federal and state agencies, including the Maritime Administration of the US Department of Transportation, the US Coast Guard, and the US Environmental Protection Agency. If we fail to comply with these rules and regulations, we could be prohibited from operating or leasing marine assets in the US market, and under certain circumstances, could incur severe fines and penalties, including potential limitations on operations or forfeitures of assets.

In addition, our foreign operations are subject to the jurisdiction of authorities in countries where we do business. If we fail to comply with these laws, rules, and regulations, or if they change in the future, the use of our assets could be restricted, or the economic value of our assets may be reduced. These restrictions or reductions could lead to loss of revenue or cause us to incur significant expenses to comply with laws, rules, and regulations, thereby increasing operating expenses. Certain changes to or actions by authorities under existing laws, rules, and regulations, or actions, could result in the obsolescence of various assets or impose compliance costs that are significant enough to render those assets economically obsolete.

A significant increase in the number of tank cars requiring compliance-based maintenance could negatively impact operations and substantially increase costs.

We perform a variety of government or industry-mandated maintenance programs on our full-service tank cars based on their service time. New government regulations or industry rules are sometimes enacted, which may affect the number and type of procedures we are required to perform. These compliance programs are cyclical in nature, and as a result, we can face significant increases in the volume of tank cars requiring extensive maintenance in any given year. A significant increase in the number of tank cars requiring maintenance may negatively impact our operations and substantially increase maintenance and other related costs. In addition, while we have contracted with third party maintenance providers to assist with these compliance procedures, high demand faced by these providers from other tank car owners may constrain our access to the providers or may substantially increase our costs.

Our access to newly built railcars may be limited, and long-term railcar purchase commitments could subject us to material operational and financial risks.

Unlike some of our competitors in the railcar leasing market, we do not manufacture railcars. Our ability to acquire newly built railcars could be limited if we are unable to acquire railcars from manufacturers on competitive terms.

15


In order to obtain committed access to a supply of newly built railcars on competitive terms, we sometimes enter into long-term supply agreements with manufacturers to purchase significant numbers of newly built railcars over a multi-year period. In many cases, we cannot cancel or materially reduce our orders under these purchase commitments. Therefore, if economic conditions weaken during the term of a long-term supply agreement, it is possible that we may be required to continue to accept delivery of, and pay for, new railcars at times when it may be difficult for us to lease such railcars and our financing costs may be high, which could negatively affect our revenues and profitability.

Deterioration of conditions in the global capital markets or negative changes in our credit ratings may limit our ability to secure financing and may increase our borrowing costs.

We rely largely on banks and capital markets to fund our operations and contractual commitments, including the issuance of long-term debt instruments and commercial paper. These markets can experience high levels of volatility and access to capital can be limited for an extended period of time. In addition to conditions in the capital markets, changes in our financial performance or credit ratings or ratings outlook, as determined by rating agencies such as Standard & Poor’s and Moody’s Investors Service, could cause us to incur increased borrowing costs or to have greater difficulty accessing public and private markets for secured and unsecured debt. If we are unable to secure financing on acceptable terms, our other sources of funds, including available cash, bank facilities, cash flow from operations, and portfolio proceeds, may not be adequate to fund our operations and contractual commitments.

Events that negatively affect certain assets, customers, or geographic regions could have a negative impact on our results of operations.

We generally derive our revenues from a variety of asset types, customers, industries, and geographic locations. However, from time to time we could have a large investment in a particular asset type, a large revenue stream associated with a particular customer or industry, or a large number of customers located in a particular geographic region. Decreased demand from a discrete event impacting a specific asset type, customer, or industry, or region in which we have a concentrated exposure could negatively impact our results of operations.

A significant and sustained decrease in the price of crude oil and related products could reduce customer demand for our railcars.

Demand for railcars that are used to transport crude oil and related products, including frac sand, ethanol and other petrochemical products, is dependent on the demand for these commodities. While only about 1.7% of our worldwide fleet is engaged in direct crude-by-rail service, approximately 18% of our North American fleet is leased to petroleum-related customers, making them an important source of our worldwide revenue. Sustained low oil prices could cause oil producers to curtail the drilling of new wells or cease production at certain existing wells that are uneconomical to operate at current crude price levels. Reduced oil drilling activity could result in decreased demand for our railcars used to transport the commodities used in drilling operations, such as frac sand, and the commodities produced by such operations, including crude oil and other products associated with the petroleum industry such as ethanol, gasoline, diesel fuel, petrochemicals and liquefied petroleum gas..

Risks related to our international operations and expansion into new geographic markets could adversely affect our business, financial condition, and operating results.

We generate a significant amount of our net income outside the United States. In recent years, we have increased our focus on international rail growth and expansion into select emerging markets as a means to grow and diversify earnings. Our foreign operations and international expansion strategy are subject to the following risks associated with international operations:

Noncompliance with United States laws affecting operations outside of the United States, such as the Foreign Corrupt Practices Act
Noncompliance with a variety of foreign laws and regulations
Failure to properly implement changes in tax laws and the interpretation of those laws
Fluctuations in currency values
Sudden changes in foreign currency exchange controls
Discriminatory or conflicting fiscal policies
Difficulties enforcing contractual rights or foreclosing to obtain the return of our assets in certain jurisdictions
Uncollectible accounts and longer collection cycles that may be more prevalent in foreign countries
Ineffective or delayed implementation of appropriate controls, policies, and processes across our diverse operations and employee base

16


Imposition of sanctions against countries where we operate or specific companies or individuals with whom we do business
Nationalization or confiscation of assets by foreign governments, and imposition of additional or new tariffs, quotas, trade barriers, and similar restrictions on our operations outside the United States

Our allowance for losses may be inadequate.

Our allowance for losses on reservable assets may not be adequate to cover credit losses in our portfolio if unexpected adverse changes occur in macroeconomic conditions or if discrete events adversely affect specific customers, industries, or markets. If the credit quality of our customer base materially deteriorates, it may require us to incur additional credit losses and our financial position or results of operations could be negatively impacted.

We may incur future asset impairment charges.

We review long-lived assets and joint venture investments for impairment regularly, or when circumstances indicate the carrying value of an asset or investment may not be recoverable. Among other circumstances, the following may change our estimates of the cash flows we expect our long-lived assets or joint venture investments will generate, which could require us to recognize asset impairment charges:

A weak economic environment or challenging market conditions
New laws, rules or regulations affecting our assets, or changes to existing laws, rules or regulations
Events related to particular customers or asset types
Asset or portfolio sale decisions by management

Our assets may become obsolete.

In addition to changes in laws, rules, and regulations that may make assets obsolete, changes in the preferred method our customers use to ship their products, changes in demand for particular products, or a shift by customers toward purchasing assets rather than leasing them may adversely impact us. Our customers' industries are driven by dynamic market forces and trends, which are influenced by economic and political factors. Changes in our customers' markets may significantly affect demand for our rail and marine assets. A reduction in customer demand or change in customers' preferred method of product transportation could result in the economic obsolescence of the assets leased by those customers.

We are subject to extensive environmental regulations and the costs of remediation may be material.

We are subject to extensive federal, foreign, state, and local environmental laws and regulations concerning, among other things, the discharge of hazardous materials and remediation of contaminated sites. In addition, some of our properties, including those previously owned or leased, have been used for industrial purposes which may have resulted in discharges onto these properties. Environmental liability can extend to previously owned or operated properties in addition to properties we currently own or use. We routinely assess environmental liabilities, including our potential obligations and commitments for remediation of contaminated sites and the possible amount of recoveries from other responsible parties. Due to the regulatory complexities and risk of unidentified contaminants on our properties, it is possible environmental and remediation costs may be materially different from the costs we have estimated.

We have been and may continue to be involved in various types of litigation.

The nature of our businesses and our assets potentially expose us to significant personal injury and property damage claims and litigation, environmental claims, or other types of litigation. Customers may use certain types of our railcars to transport crude oil and other hazardous materials, and an accident involving a railcar carrying such materials could lead to litigation and subject us to significant liability, particularly where the accident involves serious personal injuries or the loss of life. Our failure to maintain railcars in compliance with governmental regulations and industry rules could also expose us to personal injury, property damage, and environmental claims. A substantial adverse judgment against us could have a material effect on our financial position, results of operations, and cash flows.


17


We may not be able to obtain cost-effective insurance.

We manage our exposure to risk, in part, by insuring our assets. There is no guarantee that cost-effective insurance will consistently be available. If insurance coverage becomes prohibitively expensive, we could be forced to reduce our coverage amount and increase the amount of self-insured risk we retain, thereby increasing our exposure to uninsured adverse judgments and other losses and liabilities that could have a material effect on our financial position, results of operations and cash flows.

The fair market value of our long-lived assets may differ from the value of those assets reflected in our financial statements.

Our assets primarily consist of long-lived assets such as railcars, marine vessels, and other equipment. The carrying value of these assets in our financial statements may sometimes differ from their fair market value. These valuation differences may be positive or negative and could be material based on market conditions and demand for certain assets.

Fluctuations in foreign exchange rates and interest rates could negatively impact our results of operations.

Upon consolidation, we translate the financial results of certain subsidiaries from their local currency to the US dollar, which exposes us to foreign exchange rate fluctuations. As exchange rates vary, the translated operating results of foreign subsidiaries may differ materially from period to period. We also have gains and losses on foreign currency transactions, which could vary based on fluctuations in exchange rates and the timing of the transactions and their settlement. In addition, fluctuations in foreign exchange rates can affect the demand and price for services we provide both domestically and internationally, and could negatively impact our results of operations. We also face risks associated with fluctuations in interest rates. We may seek to limit foreign exchange rate and interest rate risk with currency or interest rate derivatives, which may not be effective. A material and unexpected change in interest rates or foreign exchange rates could negatively affect our financial performance.

We are subject to the inherent risks of our affiliate investments.

We are indirectly exposed to risks through our ownership interests in affiliates, as our affiliates may experience many of the same risks discussed in this "Risk Factors" section. Third parties manage and operate many of our affiliates, and we sometimes retain third parties to manage assets we own directly, such as our ocean-going vessels. Some of those third parties may be smaller than we are and have fewer financial resources. Poor business or financial results of these affiliates, or the third parties who manage, operate, or invest along with us in these affiliates, could negatively impact our financial results. Additionally, when a third party manages and operates an affiliate or asset, we may not have control over operational matters related to the affiliate or asset, which could result in actions that have an adverse economic impact on the affiliate, the asset, or GATX or could expose GATX to potential liability.

We have significant financial exposure related to the performance of our aircraft engine leasing affiliate investments.

GATX and Rolls-Royce plc (“Rolls Royce”) each own 50% of fourteen domestic and foreign joint venture entities (collectively, the “RRPF affiliates”) that own and lease aircraft engines to Rolls-Royce and owners and operators of commercial aircraft. These investments expose us to various risks associated with the commercial aviation industry, including geographic exposure and customer concentrations unique to that industry. The financial results of the RRPF affiliates depend heavily on the performance of Rolls-Royce, as Rolls-Royce is both a major customer of, and a critical supplier of maintenance services to, the RRPF affiliates. The RRPF affiliates contribute significantly to our profit. If the financial or operating performance of the RRPF affiliates deteriorated, our results of operations and cash flows could be negatively affected.

Competition could result in decreased profitability.

We operate in a highly competitive business environment. In certain cases, our competitors are larger than we are and have greater financial resources, higher credit ratings, and a lower cost of capital. These factors may enable our competitors to offer leases to customers at lower rates than we can provide, thus negatively impacting our profitability, asset utilization and investment volume.


18


We may be affected by climate change or market or regulatory responses to climate change.

Changes in laws, rules, and regulations, or actions by authorities under existing laws, rules, or regulations, to address greenhouse gas emissions and climate change could negatively impact our customers and business. For example, restrictions on emissions could significantly increase costs for our customers whose production processes require significant amounts of energy. Customers' increased costs could reduce their demand to lease our assets. In addition, railcars in our fleet that are used to carry fossil fuels, such as coal and petroleum, could see reduced demand if new government regulations mandate a reduction in fossil fuel consumption. New government regulations could also increase our marine and other operating costs, either directly or through our joint venture entities, or compliance with those regulations could be costly. Potential consequences of laws, rules, or regulations addressing climate change could have an adverse effect on our financial position, results of operations, and cash flows.

A small number of shareholders could significantly influence our business.

Six shareholders collectively control more than 50% of our outstanding common stock. Accordingly, a small number of shareholders could affect matters that require shareholder approval, such as the election of directors and the approval of significant business transactions.

We cannot predict with certainty the impact that inflation or deflation will have on our financial results.

The timing and duration of the effects of inflation are unpredictable and depend on market conditions and economic factors. Inflation in lease rates as well as inflation in residual values for rail, marine, and other equipment has historically benefited our financial results. However, these benefits may be offset by increases in the costs for goods and services we purchase, including salaries and wages, health care costs, supplies, utilities, maintenance and repair services, and materials, as well as increased financing costs. Significant increases in our cost of goods and services could adversely impact our financial performance. Conversely, a period of prolonged deflation could negatively impact our lease rate pricing, residual values, and asset remarketing opportunities. These negative impacts of deflation may be offset by decreases to our costs for goods and services, including those listed above.

High energy prices could reduce the demand for our products and services.

The price of natural gas is a significant cost driver for many of our customers, either directly in the form of raw material costs in industries such as the chemical and steel industries, or indirectly in the form of increased transportation costs. Sustained high energy prices could negatively impact these industries resulting in a reduction in customer demand for our assets and related services.

Unfavorable conditions on the Great Lakes could impact business operations, which could result in increases in costs and decreases in revenues.

The success of our ASC subsidiary depends on the efficiency of its operations on the Great Lakes. Disruptions at the Sault St. Marie locks or severe weather conditions, such as high wind and ice formation, could cause significant business interruptions or shortened sailing seasons. Additionally, low water levels and vessel draft restrictions may restrict the volume that ASC's vessels can transport per trip. These conditions could negatively impact our results of operations through increased operating costs or decreased revenues.

Many of our employees are represented by unions, and failure to successfully negotiate collective bargaining agreements may result in strikes, work stoppages, or substantially higher labor costs.

A significant portion of our employees are represented by labor unions and work under collective bargaining agreements that cover a range of workplace matters, such as wages, health and welfare benefits, and work rules. We have generally been successful in negotiating acceptable agreements with the unions without experiencing material work stoppages. However, if we fail to negotiate acceptable new agreements, our business could be disrupted by strikes or lockouts. We could also incur increased operating costs due to higher wages or benefits paid to union workers. Business disruptions or higher operating costs could both have an adverse effect on our financial position, results of operations, or cash flows.


19


Changes to assumptions used to calculate post-retirement costs, increases in funding requirements, and investment losses in pension funds could adversely affect our results of operations.

We calculate our pension and other post-retirement costs using various assumptions, such as discount rates, long-term return on plan assets, salary increases, health care cost trend rates, and other factors. Changes to any of these assumptions could adversely affect our financial position and results of operations. Periods of low interest rates reduce the discount rate we use to calculate our funding obligations, which may increase our funding requirements. Additionally, changes to laws, regulations, or rules could require us to increase funding requirements or to compensate for investment losses in pension plan assets. If we were forced to increase contributions to our pension plans, our financial position, results of operations, and cash flows could be negatively affected.

Changes in the mix of earnings in the US and foreign countries could adversely affect our effective tax rate.

We are subject to taxes in the United States and various foreign jurisdictions. As a result, our effective tax rate could be adversely affected by changes in the mix of earnings in the United States and foreign countries with differing statutory tax rates. Our effective tax rate could also be adversely affected by changes in tax laws, material audit assessments, or legislative changes that impact statutory tax rates, which could include an impact on previously-recorded deferred tax assets and liabilities.

We could be adversely affected by United States and global political conditions, including acts or threats of terrorism or war.

We may be adversely affected by national and international political developments, instability, and uncertainties, including political unrest and threats of terrorist attacks, which could lead to the following:

Legislation or regulatory action directed toward improving the security of railcars and marine vessels against acts of terrorism, which could affect the construction or operation of railcars and marine vessels
A decrease in demand for rail and marine services
Lower utilization of rail and marine equipment
Lower rail lease and marine charter rates
Impairments of rail and marine assets or capital market disruption, which may raise our financing costs or limit our access to capital
Liability or losses resulting from acts of terrorism involving our assets
A downturn in the commercial aviation industry, which could lead to adverse financial results for our RRPF affiliates.

Depending upon the severity, scope, and duration of these circumstances, the impact on our financial position, results of operations, and cash flows could be material.

We rely on technology in all aspects of our business operations. If we are unable to adequately maintain and secure our IT infrastructure from cybersecurity threats and related disruptions, our business could be negatively impacted.

We rely on our IT infrastructure to process, transmit, and store electronic information that is critical to all aspects of our business operations, including employee and customer information. All IT systems are vulnerable to security threats, such as hacking, viruses, malicious software, and other unlawful attempts to disrupt or gain access to these systems. Although we have taken steps to mitigate these risks, we may not be able to prevent breaches of our IT infrastructure, some of which is managed by third parties. Breaches of our IT infrastructure could lead to disruptions in our business, potentially including the theft, destruction, loss, misappropriation, or release of confidential employee and customer information stored on our IT systems or confidential data or other business information. These disruptions could adversely affect our operations, financial position, and results of operations.

Our internal control over financial accounting and reporting may not detect all errors or omissions in the financial statements.

If we fail to maintain adequate internal controls over financial accounting, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. Although management has concluded that adequate internal control procedures are in place, no system of internal control provides absolute assurance that the financial statements are accurate and free of error.


20


Item 1B.  Unresolved Staff Comments

None.


21


Item 2.  Properties

Information regarding the general character of our properties is included in Item 1, “Business” of this Form 10-K.

As of December 31, 2014, our locations of operations were as follows:
 
GATX Headquarters
 
 
 
 
 
Chicago, Illinois
 
 
 
 
Rail North America
 
 
 
Business Offices
Major Service Centers
Mobile Units
Alpharetta, Georgia
Colton, California
Camp Minden, Louisiana
Bozeman, Montana
Hearne, Texas
Columbia, New Jersey
Chicago, Illinois
Waycross, Georgia
Copperhill, Tennessee
Doylestown, Pennsylvania
Montreal, Quebec
Donaldsonville, Louisiana
Hackensack, New Jersey
Moose Jaw, Saskatchewan
Galena Park, Texas
Holicong, Pennsylvania
Red Deer, Alberta
Macon, Georgia
Houston, Texas
 
East Chicago, Indiana
Monroeville, Pennsylvania
Field Repair Centers
Lake Charles, Louisiana
Morrill, Nebraska
East Chicago, Indiana
Mobile, Alabama
Paducah, Kentucky
Kansas City, Kansas
Kansas City, Kansas
San Francisco, California
Plantersville, Texas
Olympia, Washington
Savage, Minnesota
Terre Haute, Indiana
Sioux City, Iowa
Calgary, Alberta
Sarnia, Ontario
Lakeland, Florida
Mexico City, Mexico
 
Clarkson, Ontario
Mississauga, Ontario
Customer Site Locations
Edmonton, Alberta
Montreal, Quebec
Aurora, North Carolina
Moose Jaw, Saskatchewan
 
Catoosa, Oklahoma
Montreal, Quebec
 
Donaldsonville, Louisiana
Quebec City, Quebec
 
Freeport, Texas
Red Deer, Alberta
 
Geismar, Louisiana
Sarnia, Ontario
 
Yazoo City, Mississippi
 
 
 
 
Rail International
 
 
 
Business Offices
Major Service Centers
Customer Site Locations
Düsseldorf, Germany
Hannover, Germany
Płock, Poland
Hamburg, Germany
Ostróda, Poland
 
Leipzig, Germany
 
 
Moscow, Russia
 
 
Gurgaon, India
 
 
Paris, France
 
 
Vienna, Austria
 
 
Warsaw, Poland
 
 
 
 
 
 
American Steamship Company
 
 
 
 
 
Duluth, Minnesota
 
 
Toledo, Ohio
 
 
Williamsville, New York
 
 
 
Portfolio Management
 
 
 
 
 
Chicago, Illinois
 
 
San Francisco, California
 

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Item 3.  Legal Proceedings

Information concerning litigation and other contingencies is described in "Note 23. Legal Proceedings and Other Contingencies" in Part II, Item 8 of this Form 10-K and is incorporated herein by reference.

Item 4.  Mine Safety Disclosures

None.


23


PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Our common stock is listed on the New York and Chicago Stock Exchanges under ticker symbol GMT. We had approximately 1,999 common shareholders of record as of January 31, 2015. The following table shows the reported high and low sales price of our common shares and the dividends declared per share:

 
 
 
 
 
 
 
 
 
2014
 
2013
 
2014
 
2014
 
2013
 
2013
 
Dividends
Declared
 
Dividends
Declared
Common Stock
High
 
Low
 
High
 
Low
 
 
First quarter
$
69.87

 
$
50.80

 
$
52.11

 
$
43.54

 
$
0.33

 
$
0.31

Second quarter
69.00

 
62.48

 
54.19

 
45.40

 
0.33

 
0.31

Third quarter
68.45

 
58.21

 
49.20

 
43.88

 
0.33

 
0.31

Fourth quarter
65.87

 
52.51

 
53.45

 
45.27

 
0.33

 
0.31


Issuer Purchases of Equity Securities

Our board of directors authorized a $250 million stock repurchase program on January 23, 2014, and as of December 31, 2014, $125.4 million was available under the repurchase authorization. In 2014, we repurchased 1.9 million shares for $124.6 million.
Equity Compensation Plan Information as of December 31, 2014:
 
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
 
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in Column (a))
Plan Category
 
(a)
 
(b)
 
(c)
Equity Compensation Plans Approved by Shareholders
 
2,031,127

(1)
 
$
39.65

(2)
 
2,446,949

Equity Compensation Plans Not Approved by Shareholders
 

 
 
 
 
 

Total
 
2,031,127

 
 
 
 
 
2,446,949

__________
(1)
Consists of 1,489,577 stock appreciation rights, 216,378 performance shares, 177,210 restricted stock units and 147,962 phantom stock units.
(2)
The weighted-average exercise price does not include performance shares, restricted stock or phantom stock units.

For additional information about issuable securities under our equity compensation plans and the related weighted average exercise price, see "Note 12. Share-Based Compensation" in Part II, Item 8 of this Form 10-K.



    


24


Common Stock Performance Graph

The performance graph below compares the cumulative total shareholder return on our common stock for the five-year period ended December 31, 2014, with the cumulative total return of the S&P 500, the S&P MidCap 400, and the Russell 3000. We are not aware of any peer companies whose businesses are directly comparable to ours, and therefore, the graph displays the returns of the S&P 500, the S&P MidCap 400 and the Russell 3000 since those indices are comprised of companies with market capitalizations similar to ours. The graph and table assume that $100 was invested in our common stock and each of the indices on December 31, 2009, and that all dividends were reinvested.




12/31/09
 
12/31/10
 
12/31/11
 
12/31/12
 
12/31/13
 
12/31/14
GATX
$
100.00

 
$
127.50

 
$
162.93

 
$
166.27

 
$
205.43

 
$
231.47

S&P 500
100.00

 
115.08

 
117.47

 
136.24

 
180.33

 
204.96

S&P MidCap 400
100.00

 
126.64

 
124.43

 
146.58

 
195.60

 
214.62

Russell 3000
100.00

 
116.93

 
118.11

 
137.48

 
183.61

 
206.62



25


Item 6.  Selected Financial Data

The following financial information has been derived from our audited consolidated financial statements for the years ended December 31 (in millions, except per share data, recourse leverage, and return on equity). This information should be read in conjunction with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and accompanying notes thereto included elsewhere herein.

 
2014
 
2013
 
2012
 
2011
 
2010
Results of Operations
 
 
 
 
 
 
 
 
 
Revenue
$
1,451.0

 
$
1,321.0

 
$
1,243.2

 
$
1,191.4

 
$
1,114.0

Gain on asset dispositions
87.2

 
85.6

 
79.5

 
65.8

 
41.1

Share of affiliates’ earnings (pretax)
67.8

 
92.3

 
21.6

 
40.6

 
38.1

Net income
205.0

 
169.3

 
137.3

 
110.8

 
80.8

Net income, excluding tax adjustments and other items (1)
205.0

 
164.8

 
133.8

 
95.0

 
74.6

Per Share Data
 
 
 
 
 
 
 
 
 
Basic earnings
4.55

 
3.64

 
2.93

 
2.39

 
1.75

Diluted earnings
4.48

 
3.59

 
2.88

 
2.35

 
1.72

Diluted earnings, excluding tax adjustments and other items (1)
4.48

 
3.50

 
2.81

 
2.01

 
1.59

Dividends declared
1.32

 
1.24

 
1.20

 
1.16

 
1.12

Financial Condition
 
 
 
 
 
 
 
 
 
Operating assets and facilities, net of accumulated depreciation
$
5,688.0

 
$
5,070.3

 
$
4,654.4

 
$
4,359.3

 
$
4,133.8

Investments in affiliated companies
357.7

 
354.3

 
502.0

 
513.8

 
486.1

Total assets
6,937.5

 
6,549.6

 
6,055.4

 
5,857.5

 
5,442.4

Off-balance-sheet assets (1)
617.8

 
904.4

 
884.5

 
887.1

 
971.5

Short-term borrowings
72.1

 
23.6

 
273.6

 
28.6

 
115.6

Long-term debt and capital lease obligations
4,202.1

 
3,847.4

 
3,294.3

 
3,518.5

 
3,060.9

Shareholders’ equity
1,314.0

 
1,397.0

 
1,244.2

 
1,127.3

 
1,113.7

Other Data
 
 
 
 
 
 
 
 
 
Average number of common shares and common share equivalents
45.8

 
47.1

 
47.6

 
47.2

 
47.0

Net cash provided by operating activities
$
449.2

 
$
400.7

 
$
370.2

 
$
306.8

 
$
243.7

Portfolio proceeds
$
264.0

 
$
385.3

 
$
288.9

 
$
154.1

 
$
84.3

Portfolio investments and capital additions
$
1,030.5

 
$
859.6

 
$
770.0

 
$
614.6

 
$
585.1

Recourse leverage
3.5

 
3.0

 
3.2

 
3.4

 
3.3

ROE
15.1
%
 
12.8
%
 
11.6
%
 
9.9
%
 
7.3
%
ROE, excluding tax adjustments and other items (1)
15.1
%
 
12.5
%
 
11.3
%
 
8.5
%
 
6.7
%
__________
(1) See "Non-GAAP Financial Measures" included in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K for an explanation of tax adjustments and other items.



26


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We lease, operate, manage, and remarket long-lived, widely-used assets, primarily in the rail and marine markets. We also invest in joint ventures that complement our existing business activities. We report our financial results through four primary business segments: Rail North America, Rail International, American Steamship Company (“ASC”), and Portfolio Management. A more complete description of our business is included in "Item 1. Business," in Part I of this Form 10-K.

The following discussion and analysis should be read in conjunction with the audited financial statements included in "Item 8. Financial Statements and Supplementary Data" in this Form10-K. We based the discussion and analysis that follows on financial data we derived from the financial statements prepared in accordance with GAAP and on certain other financial data that we prepared using non-GAAP components. For a reconciliation of these non-GAAP components to the most comparable GAAP components, see “Non-GAAP Financial Measures” at the end of this item.

DISCUSSION OF OPERATING RESULTS

The following table shows a summary of our reporting segments and consolidated financial results for years ended December 31 (in millions, except per share data and percentages):
 
2014
 
2013
 
2012
Segment Revenues
 
 
 
 
 
Rail North America
$
927.5

 
$
817.1

 
$
765.3

Rail International
198.9

 
189.0

 
167.7

ASC
227.2

 
227.7

 
243.4

Portfolio Management
97.4

 
87.2

 
66.8

 
$
1,451.0

 
$
1,321.0

 
$
1,243.2

Segment Profit
 
 
 
 
 
Rail North America
$
321.0

 
$
231.6

 
$
209.3

Rail International
78.7

 
97.4

 
32.7

ASC
27.3

 
28.9

 
37.5

Portfolio Management
68.2

 
74.4

 
50.2

 
495.2

 
432.3

 
329.7

Less:
 
 
 
 
 
Selling, general and administrative expense
189.2

 
178.3

 
160.2

Unallocated interest expense, net
5.4

 
3.8

 
5.4

Other, including eliminations
1.6

 
(1.1
)
 
(1.3
)
Income taxes ($18.3, $16.5 and $2.0 related to affiliates' earnings)
94.0

 
82.0

 
28.1

   Net Income   
$
205.0

 
$
169.3

 
$
137.3

 
 
 
 
 
 
Net income, excluding tax adjustments and other items
$
205.0

 
$
164.8

 
$
133.8

Diluted earnings per share
4.48

 
3.59

 
2.88

Diluted earnings per share, excluding tax adjustments and other items
4.48

 
3.50

 
2.81

 
 
 
 
 
 
Return on equity
15.1
%
 
12.8
%
 
11.6
%
Return on equity, excluding tax adjustments and other items
15.1
%
 
12.5
%
 
11.3
%
 
 
 
 
 
 
Investment Volume
$
1,030.5

 
$
859.6

 
$
770.0



27


2014 Summary

Net income was $205.0 million, or $4.48 per diluted share, for 2014 compared to $169.3 million, or $3.59 per diluted share, for 2013, and $137.3 million, or $2.88 per diluted share, for 2012. Results in 2013 and 2012 included benefits from tax adjustments and other items of $4.5 million and $3.5 million (see "Non-GAAP Financial Measures" at the end of this item for further details). Excluding the impact of these items, net income increased $40.2 million, or 24.4%, in 2014 compared to 2013 and $31.0 million, or 23.2%, in 2013 compared to 2012.
At Rail North America, higher lease rates and more cars on lease, including additional boxcars acquired in 2014, drove an increase in segment profit in 2014.
At Rail International, segment profit in 2014 declined due to the absence of income from GATX's interest in a joint venture that was sold during the third quarter of 2013. In addition, higher maintenance expense and higher depreciation expense were partially offset by higher lease revenue.
At ASC, segment profit was slightly lower in 2014 due to weather delays early in the year and increased maintenance expense.
At Portfolio Management, lower asset remarketing income and lower aggregate operating income from ocean-going marine operations resulted in a decrease in segment profit in 2014. However, continued strong operating results at the Rolls-Royce Partners Finance ("RRPF") affiliates helped offset this decrease.
Total investment volume was $1,030.5 million in 2014, compared to $859.6 million in 2013 and $770.0 million in 2012.
2015 Outlook
Overall, we are optimistic about the year ahead. We will continue to benefit from the diversity of our fleet, the rate and term structure of Rail North America's lease portfolio, the strength of our committed cash flows, and the attractive investments made in recent years.
We expect Rail North America's segment profit to increase, primarily driven by the cumulative effect of the renewal of expiring leases at higher lease rates across many car types and the full-year impact from the boxcar fleet acquired in March 2014, which should more than offset increased maintenance expense. Uncertainty in the energy-related markets may affect pricing and utilization for the portion of our fleet subject to leases expiring in 2015. In addition, regulations for tank cars in flammable liquid service should be finalized in the coming months in both the United States and Canada, which will likely impact our business. However, we cannot predict the potential costs or timing of pending regulatory changes at this time.
We expect modest improvement in Rail International's segment profit in 2015, as we continue to invest in new railcars in 2015.
We expect an increase in ASC’s segment profit, resulting from anticipated stable customer demand and a more normal start to the shipping season in 2015.
We believe Portfolio Management's segment profit in 2015 will be comparable to 2014 as we expect the RRPF affiliates and the inland marine assets to have another solid year.


28


Segment Operations

Segment profit is an internal performance measure used by the Chief Executive Officer to assess the performance of each segment in a given period. Segment profit includes all revenues, pretax earnings from affiliates, and net gains on asset dispositions that are attributable to the segments, as well as expenses that management believes are directly associated with the financing, maintenance, and operation of the revenue earning assets. Segment profit excludes selling, general and administrative expenses, income taxes, and certain other amounts not allocated to the segments. These amounts are included in Other.

We allocate debt balances and related interest expense to each segment based upon a predetermined fixed recourse leverage level expressed as a ratio of recourse debt (including off-balance-sheet debt) to equity. The leverage levels are 5:1 for Rail North America, 2:1 for Rail International, 1.5:1 for ASC, and 3:1 for Portfolio Management. We believe that by using this leverage and interest expense allocation methodology, each operating segment’s financial performance reflects appropriate risk-adjusted borrowing costs.


RAIL NORTH AMERICA

Segment Summary

At the end of the first quarter of 2014, we acquired more than 18,500 boxcars from General Electric Railcar Services Corporation for approximately $340 million (the "Boxcar Fleet"). At December 31, 2014, Rail North America's wholly owned fleet consisted of approximately 126,000 cars, including approximately19,000 boxcars. Fleet utilization, excluding boxcars, was 99.2% at the end of 2014, compared to 98.5% at the end of 2013, and 97.9% at the end of 2012. Fleet utilization for boxcars was 92.7% at the end of 2014 compared to 78.8% upon acquisition of the Boxcar Fleet.

During 2014, North American tank car demand remained near record levels and freight car demand improved materially throughout the year, leading to attractive lease rates and lease terms. During the year, the renewal rate change of the Lease Price Index (the "LPI", see definition below) increased 38.8%, compared to an increase of 34.5% in 2013, and 25.6% in 2012. In addition to general market strength, the LPI was favorably impacted by coal car renewals at materially improved rates. Lease terms on renewals for cars in the LPI averaged 66 months in 2014, compared to 62 months in 2013, and 60 months in 2012. During 2014, an average of approximately 105,800 railcars, excluding boxcars, were on lease, compared to 106,200 in 2013, and 105,500 in 2012.

In 2011, we entered into a purchase agreement with Trinity Rail Group, LLC ("Trinity") for 12,500 railcars through mid-2016, which was the largest such commitment in our history. Under this agreement, we have taken delivery of approximately 7,900 railcars as of December 31, 2014, and expect to take delivery of 2,200 railcars in 2015. In 2014, we entered into a new long-term supply agreement with Trinity to take effect upon the scheduled expiration of the current railcar supply agreement in 2016. Under the terms of this agreement, we may order up to 8,950 newly built railcars over a four-year period from March, 2016 through March, 2020.

In 2015, we expect an increase in segment profit as a result of higher lease revenue, partially offset by increased maintenance expense and higher depreciation. Leases for approximately 17,000 railcars in our term lease fleet and approximately 6,000 boxcars will expire in 2015. To the extent available, we plan to pursue additional investment opportunities, but the timing and size of such opportunities will largely be dictated by factors beyond our immediate control.




29


The following table shows Rail North America's segment results for the years ended December 31 (in millions):

2014

2013

2012
Revenues








Lease revenue
$
864.1


$
758.9


$
713.9

Other revenue
63.4


58.2


51.4

   Total Revenues
927.5


817.1


765.3

 
 
 
 
 
 
Expenses








Maintenance expense
265.5

 
228.2

 
201.4

Depreciation expense
190.0


176.7


167.7

Operating lease expense
103.7


124.4


126.5

Other operating expense
21.9


18.4


18.5

   Total Expenses
581.1


547.7


514.1

 
 
 
 
 
 
Other Income (Expense)








Net gain on asset dispositions
72.3

 
67.7

 
58.6

Interest expense, net
(98.4
)

(106.0
)

(101.9
)
Other expense
(7.2
)
 
(9.8
)
 
(5.1
)
Share of affiliates' earnings (pretax)
7.9


10.3


6.5

Segment Profit   
$
321.0


$
231.6


$
209.3

 
 
 
 
 
 
Investment Volume
$
810.6


$
502.4


$
465.9


The following table shows the components of Rail North America's lease revenue for the years ended December 31 (in millions):
 
2014
 
2013
 
2012
Railcars (excluding boxcars)
$
764.5

 
$
716.9

 
$
672.0

Boxcars
64.7

 
9.8

 
8.0

Locomotives
34.9

 
32.2

 
33.9

 
$
864.1

 
$
758.9

 
$
713.9


Lease Price Index

Our LPI is an internally-generated business indicator that measures lease rate pricing on renewals for our North American railcar fleet, excluding the Boxcar Fleet. We calculate the index using the weighted average lease rate for a group of railcar types that we believe best represents our overall North American fleet, excluding boxcars. The average renewal lease rate change is reported as the percentage change between the average renewal lease rate and the average expiring lease rate, weighted by fleet composition. The average renewal lease term is reported in months and reflects the average renewal lease term of railcar types in the LPI, weighted by fleet composition.




30



Rail North America Fleet Data
The following table shows fleet activity for Rail North America railcars, excluding boxcars, for the years ended December 31:
 
2014
 
2013
 
2012
Beginning balance
107,004

 
107,826

 
107,204

Cars added
3,453

 
4,596

 
4,566

Cars scrapped
(1,397
)
 
(1,693
)
 
(1,993
)
Cars sold
(1,717
)
 
(3,725
)
 
(1,951
)
Ending balance
107,343

 
107,004

 
107,826

Utilization rate at year end
99.2
%
 
98.5
%
 
97.8
%
Active railcars at year end
106,500

 
105,394

 
105,504

Average (monthly) active railcars
105,791

 
106,186

 
105,465


31




The following table shows fleet statistics for Rail North America boxcars for the years ended December 31:
 
2014
 
2013
 
2012
Ending balance
19,021

 
2,109

 
1,725

Utilization rate at year end
92.7
%
 
100.0
%
 
99.2
%

The following table shows fleet activity for Rail North America locomotives for the years ended December 31:
 
2014
 
2013
 
2012
Beginning balance
595

 
561

 
572

Locomotives added
7

 
83

 
50

Locomotives scrapped or sold
1

 
(49
)
 
(61
)
Ending balance
603

 
595

 
561

Utilization rate at year end
99.3
%
 
98.2
%
 
98.6
%
Active locomotives at year end
599

 
584

 
553

Average (monthly) active locomotives
590

 
547

 
549



32


Segment Profit

In 2014, segment profit was $321.0 million, compared to $231.6 million in 2013. The increase was primarily driven by higher lease rates and more cars on lease, including the Boxcar Fleet, partially offset by higher maintenance expense and depreciation expense. The results in 2014, compared to 2013, were also favorably impacted by a change in depreciation implemented during the year. Effective January 1, 2014, we revised the depreciable lives of our North American railcars based on a review of the current economic lives and usage of various railcar types. In aggregate, the average depreciable life of the fleet increased approximately 2.2 years. This change had a positive $21.9 million impact on segment profit for 2014.

In 2013, segment profit was $231.6 million, compared to $209.3 million in 2012, primarily due to higher lease revenue and asset remarketing income, partially offset by increased maintenance expense.

Revenues

In 2014, lease revenue increased $105.2 million, primarily due to the impact of the Boxcar Fleet and higher lease rates. Other revenue increased $5.2 million, primarily due to higher repair revenue in the current year.

In 2013, lease revenue increased $45.0 million, primarily because of higher lease rates and more cars on lease compared to 2012. Other revenue increased $6.8 million, primarily due to higher repair revenue in 2013.

Expenses

In 2014, maintenance expense increased $37.3 million, primarily due to costs associated with the Boxcar Fleet. Excluding boxcars, maintenance expense was still higher than in prior year as a result of the expected increase in compliance costs and repairs. Depreciation expense increased $13.3 million, primarily due to incremental depreciation from new investments, including the Boxcar Fleet, partially offset by the impact of the accounting policy change in estimated useful lives of the railcar fleet implemented as of January 1, 2014. Operating lease expense decreased $20.7 million due to the purchase of railcars previously on operating leases in each year. Other operating expense increased $3.5 million, primarily due to higher switching and freight costs.

In 2013, maintenance expense increased $26.8 million, due to increased compliance maintenance and higher costs of repairs. Depreciation expense increased $9.0 million, primarily due to fleet additions. Operating lease expense decreased $2.1 million, due to the 2013 and 2012 acquisitions of railcars previously leased in on operating leases.

Other Income (Expense)

In 2014, net gain on asset dispositions increased $4.6 million, primarily due to higher gains on cars sold, partially offset by lower scrapping gains. Net interest expense decreased $7.6 million, driven by lower average rates and the impact of prepayments of higher cost debt more than offsetting a higher average debt balance. Other expense decreased $2.6 million, primarily due to higher penalties associated with the early repayment of debt and costs associated with early buyout option leases in 2013 compared to 2014. Share of affiliates' earnings decreased $2.4 million, primarily due to higher gains at our Southern Capital affiliate in 2013.

In 2013, net gain on asset dispositions increased $9.1 million, primarily due to sales of approximately 1,700 more railcars. In 2012, net gain on asset dispositions included an $11.1 million fee on the early termination of a residual value guarantee. Net interest expense increased $4.1 million due to higher debt balances in 2013. Other expense increased $4.7 million, primarily due to termination costs associated with the early buyout of an operating lease and the prepayment of certain secured debt issuances. Share of affiliates' earnings increased $3.8 million, primarily due to gains on dispositions of railcars from our Southern Capital affiliate.

Investment Volume

During 2014, investment volume was $810.6 million compared to $502.4 million in 2013, and $465.9 million in 2012. Investments in 2014 included the purchase of the Boxcar Fleet of approximately 18,500 boxcars for approximately $340 million and approximately 3,570 additional railcars, compared to 4,520 railcars in 2013, and 4,470 railcars in 2012.


33


North American Rail Regulatory Matters

On July 23, 2014, the Pipeline and Hazardous Materials Safety Administration of the US Department of Transportation (“PHMSA”) issued a Notice of Proposed Rulemaking (the “NPRM”) intended to improve the safety of trains that transport large volumes of flammable liquids, primarily crude and ethanol. In addition to proposed rail operating requirements and standards for the classification of mined gases and liquids, the NPRM proposed new design standards for tank cars operating in “high hazard flammable trains” (“HHFT”), which are trains that include 20 or more carloads of any type of flammable liquid. Under the proposed rules, newly built tank cars for use in HHFT service would have to comply with the new standards beginning on October 1, 2015. The NPRM requested public comments on three different options for the new tank car standards, which vary primarily based on differences in tank thickness, braking systems, and design of top fitting protection. The NPRM also proposed standards for modifications to existing tank cars in HHFT service intended to ensure that their performance meets the same standards applicable to newly built cars. Under the NPRM, existing tank cars in HHFT service would have to be modified or removed from that service between October, 2017, and October, 2020, depending on the type of commodity carried by such cars. The NPRM was published in the Federal Register on August 1, 2014, and the public comment period expired on September 30, 2014. GATX participated in the rulemaking process through the Railway Supply Institute, a rail industry trade association which submitted comments on the NPRM. While we cannot predict the content of the final rules, the US Department of Transportation is projecting that final rules will be issued in the second quarter of 2015.

On July 2, 2014, Transport Canada ("TC") adopted regulations requiring that newly built tank cars ordered on or after July 15, 2014, and used to transport certain dangerous goods, including all types of crude oil and ethanol, comply with the design standards voluntarily adopted by the rail industry in 2011. In addition, on July 18, 2014, TC announced it is conducting a review that may result in further changes to the design standards for newly built cars used to transport flammable liquids in Canada, as well as standards and schedule for modifying existing cars used in such service. In this regard, TC announced that it intends to coordinate with PHMSA to establish standards for the entire North American fleet of tank cars in flammable liquids service. TC is expected to issue its final rule during the first half of 2015.

We are currently assessing the changes to tank car design standards proposed by PHMSA and TC and evaluating their potential impact on our tank car fleet in flammable liquids service. We have a fleet of more than 126,000 railcars in North America, including approximately 13,600 tank cars currently used to transport flammable liquids, of which approximately 4,900 are moving crude oil and ethanol. We will continue to be an active participant in the rulemaking process and the promulgation of final rules by PHMSA and TC. Until PHMSA and TC release final rules establishing the new tank car standards, we will be unable to assess how any new regulations that PHMSA and TC may ultimately adopt will impact GATX or what changes may be required to our tank cars in flammable liquids service, including the number of cars that could be repurposed or retired and the scope and cost of any retrofit program.

RAIL INTERNATIONAL

Segment Summary
 
Weak economic conditions in Europe during 2014 made it challenging to place certain newly built railcars on lease. This has led to accelerated replacement and scrapping of older cars in the fleet. Railcar utilization for GATX Rail Europe ("GRE") was 95.9% at the end of 2014, compared to 96.6% at the end of 2013, and 95.1% at the end of 2012. During 2013, we sold our 37.5% interest in Ahaus Alstätter Eisenbahn Cargo AG (“AAE”).

We are expecting modest improvement in segment profit in 2015 as higher revenues and lower relative maintenance expense will offset the negative effect associated with a weaker euro as compared to 2014.

Rail India commenced operations in 2012. Since then, we have focused on investment opportunities and developing relationships with customers, suppliers and the Indian Railways. In 2014, Rail India took delivery of 184 railcars, compared to 137 railcars in 2013 and 46 railcars in 2012. Continued investment in railcars is expected in 2015.


34


The following table shows Rail International's segment results for the years ended December 31 (in millions):
 
2014
 
2013
 
2012
Revenues
 
 
 
 
 
Lease revenue
$
188.6

 
$
180.2

 
$
161.2

Other revenue
10.3

 
8.8

 
6.5

   Total Revenues
198.9

 
189.0

 
167.7

 
 
 
 
 
 
Expenses
 
 
 
 
 
Maintenance expense
45.9

 
42.9

 
46.6

Depreciation expense
47.1

 
43.2

 
36.1

Other operating expense
5.1

 
5.3

 
5.1

   Total Expenses
98.1

 
91.4

 
87.8

 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
Net gain on asset dispositions
6.0

 
3.7

 
1.7

Interest expense, net
(24.7
)
 
(23.9
)
 
(24.5
)
Other expense
(3.1
)
 
(1.1
)
 
(6.1
)
Share of affiliates' earnings (pretax)
(0.3
)
 
21.1

 
(18.3
)
Segment Profit   
$
78.7

 
$
97.4

 
$
32.7

 
 
 
 
 
 
Investment Volume
$
163.6

 
$
168.5

 
$
200.1


The following table shows fleet activity for GRE railcars for the years ended December 31:
 
2014
 
2013
 
2012
Beginning balance
21,836

 
21,794

 
20,927

Cars added
1,672

 
1,368

 
1,536

Cars scrapped or sold
(1,057
)
 
(1,326
)
 
(669
)
Ending balance
22,451

 
21,836

 
21,794

Utilization rate at year end
95.9
%
 
96.6
%
 
95.1
%
Active railcars at year end
21,533

 
21,097

 
20,717

Average (monthly) active railcars
20,915

 
20,913

 
20,461



35


\

Foreign Currency

Segment profit for Rail International is impacted by fluctuations in the exchange rates of the foreign currencies in which it conducts business, primarily the euro. Although the euro was weaker at the end of 2014 compared to 2013, the average exchange rate for each year was comparable and had no material impact on results. In 2013, a stronger euro contributed to the increase in lease revenue and segment profit compared to 2012.

Segment Profit

In 2014, segment profit was $78.7 million compared to $97.4 million in 2013. The 2013 results included a gain of $9.3 million on the sale of our AAE investment and gains of $7.7 million related to certain interest rate swaps at AAE. Excluding the effect of the AAE items noted, segment profit decreased $1.7 million in 2014. This decrease was largely due to lower share of affiliates’ earnings, higher maintenance expense and higher depreciation expense, partially offset by higher lease revenue.

In 2013, segment profit was $97.4 million compared to $32.7 million in 2012. The 2013 results included gains of $17.0 million related to AAE as described above. The 2012 results included losses of $22.9 million from the AAE interest rate swaps. Excluding the effect of the AAE items noted, segment profit increased $24.8 million in 2013. This increase was due to increased lease revenue and fewer maintenance events, as well as the effect of foreign exchange, partially offset by higher depreciation expense.

AAE held interest rate swaps intended to hedge interest rate risk associated with existing and forecasted floating rate debt issuances. Some of these swaps did not qualify for hedge accounting, and as a result, changes in their fair values were recognized in affiliates' earnings. Additionally, in 2012, AAE refinanced a portion of its debt and terminated an associated swap at a loss. Our portion of the loss was $13.5 million, which was included in share of affiliates’ earnings.


36


Revenues

In 2014, lease revenue increased $8.4 million, primarily due to more cars on lease. Other revenue increased $1.5 million, primarily due to higher interest income on the AAE note we received as part of the sale.

In 2013, lease revenue increased $19.0 million, primarily due to an average of approximately 500 more railcars on lease at higher lease rates and the effects of a stronger euro, as noted above. Other revenue increased $2.3 million, primarily due to higher repair revenue in 2013.

Expenses

In 2014, maintenance expense increased $3.0 million, primarily due to higher workshop expenses and costs of wheelsets not eligible for capitalization. Depreciation expense increased $3.9 million, largely driven by the impact of new cars added to the fleet.

In 2013, maintenance expense decreased $3.7 million compared to 2012, primarily due to fewer underframe revisions and fewer repairs as we accelerated scrapping of older railcars, partially offset by the effect of foreign exchange. Investment activity, including capitalized wheelsets in Europe, and the effect of foreign exchange drove depreciation expense higher by $7.1 million.

Other Income (Expense)

In 2014, net gain on asset dispositions increased $2.3 million compared to 2013, primarily due to impairments in 2013 for railcars designated to be scrapped. Net interest expense increased $0.8 million due to higher average debt balances, partially offset by lower rates. Other expense increased $2.0 million, primarily due to higher legal costs and the unfavorable impact of foreign exchange on non-functional currency items compared to 2013, partially offset by a warranty settlement in 2014. Excluding the impacts of the AAE disposition gain and the interest rate swaps from each period, share of affiliates' earnings decreased $4.4 million, primarily due to the absence of operating income at AAE after the sale in 2013.

In 2013, net gain on asset dispositions increased $2.0 million compared to 2012, primarily due to more railcars being scrapped and lower impairments in 2013 for railcars to be scrapped compared to 2012. Net interest expense decreased $0.6 million, due to lower interest rates, partially offset by higher average debt balances. Other expense decreased $5.0 million, primarily due to the impact of favorable foreign exchange on non-functional currency items compared to 2012. The decreases to other expense were partially offset by higher legal costs. Excluding the impacts of the AAE disposition gain and the interest rate swaps from each period, share of affiliates' earnings decreased $0.5 million, primarily due to lower operating income at AAE, reflective of a partial year of ownership.

Investment Volume

Investment volume was $163.6 million in 2014, $168.5 million in 2013, and $200.1 million in 2012. During 2014, we acquired approximately 1,860 railcars compared to 1,500 railcars in 2013, and 1,580 railcars in 2012. Additionally, capitalized wheelset costs were $4.8 million in 2014, $25.7 million in 2013, and $30.7 million in 2012.


ASC

Segment Summary

ASC had a challenging start to the sailing season as Great Lakes ice coverage and Coast Guard restrictions hampered vessel operations and utilization early in the year. However, higher water levels allowed for increased cargo capacities and shipping volume in the second half of the year, and demand across all commodities was brisk as customers replenished low inventories. ASC also deployed an additional vessel beginning in September 2014, allowing it to secure incremental spot tonnage at attractive rates.

In 2015, we anticipate stable market demand and a more efficient start to the shipping season, leading to improved segment profit.

ASC carried 30.5 million net tons of freight and deployed 15 vessels in 2014 compared to 28.8 million net tons and 13 vessels in 2013.


37


The following table shows ASC’s segment results for the years ended December 31 (in millions):
 
2014
 
2013
 
2012
Revenues
 
 
 
 
 
Lease revenue
$
4.2

 
$
4.2

 
$
4.3

Marine operating revenue
223.0

 
223.5

 
239.1

   Total Revenues
227.2

 
227.7

 
243.4

 
 
 
 
 
 
Expenses
 
 
 
 
 
Maintenance expense
25.6

 
22.9

 
21.7

Marine operating expense
149.2

 
151.3

 
160.3

Depreciation expense
13.6

 
12.1

 
11.9

Operating lease expense
5.2

 
5.2

 
3.8

Other operating expense

 

 
(0.3
)
   Total Expenses
193.6

 
191.5

 
197.4

 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
Net loss on asset dispositions
(0.5
)
 
(1.3
)
 

Interest expense, net
(5.6
)
 
(6.2
)
 
(7.1
)
Other (expense) income
(0.2
)
 
0.2

 
(1.4
)
Segment Profit   
$
27.3

 
$
28.9

 
$
37.5

 
 
 
 
 
 
Investment Volume
$
18.4

 
$
11.2

 
$
12.6


\


38


Segment Profit

In 2014, segment profit was $27.3 million compared to $28.9 million in 2013. The variance was largely attributable to ice coverage on the Great Lakes in 2014 that led to significant operating inefficiencies early in the year.

In 2013, segment profit was $28.9 million compared to $37.5 million in 2012. The decline was primarily due to lower iron ore freight volumes and operating delays. We also recognized an impairment loss in 2013 on a vessel targeted for scrap, which negatively impacted segment results.

Revenues

In 2014, marine operating revenue decreased $0.5 million, primarily due to the operating inefficiencies early in the year, the mix of commodities carried and lower fuel surcharge revenue as a result of reduced fuel rates, which is offset by a corresponding decrease in marine operating expense. The terms of ASC's contracts provide that a portion of fuel costs may be passed on to our customers.

In 2013, marine operating revenue decreased $15.6 million, primarily due to modestly lower freight volume and lower fuel surcharges. Lower fuel prices in 2013 resulted in reduced fuel surcharges which were substantially offset in marine operating expense.

Expenses

In 2014, maintenance expense increased $2.7 million, driven by more winter work and costs associated with deploying two additional vessels in 2014 compared to 2013. Marine operating expense decreased $2.1 million largely due to lower fuel consumption and lower fuel costs, which is largely offset in revenue. These increases were partially offset by the impact of more operating days and additional vessels deployed in the current year.

In 2013, maintenance expense increased $1.2 million, due to higher vessel repair work. Marine operating expense was $9.0 million lower than 2012, primarily due to fewer operating days and lower fuel expense. Additionally, we operated one less vessel in 2013.

Operating lease expense in 2014, 2013 and 2012 relates to the lease of ASC's new tug-barge vessel which commenced operation in May 2012.

Other Income (Expense)

Net loss on asset dispositions in each year was attributable to the initial impairment and ultimate disposal of the American Fortitude. Additionally, interest expense declined each year due to lower rates.

Investment Volume

ASC's investments in each of 2014, 2013, and 2012 consisted of structural and mechanical upgrades to our vessels.



PORTFOLIO MANAGEMENT

Segment Summary

Portfolio Management focuses on maximizing the value of its existing portfolio of wholly owned and managed assets, including identifying opportunities to remarket certain assets. Portfolio Management also seeks to maximize value from its joint ventures.

Portfolio Management's segment profit is significantly impacted by the contribution of the Rolls-Royce & Partners Finance companies. The Rolls-Royce & Partners Finance companies (collectively the “RRPF affiliates”) are a collection of fourteen 50% owned domestic and foreign joint ventures with Rolls-Royce plc (or affiliates thereof, collectively “Rolls-Royce”), a leading manufacturer of commercial aircraft jet engines. Segment profit included earnings from the RRPF affiliates of $55.9 million for 2014, $52.6 million for 2013, and $44.8 million for 2012. The RRPF affiliates had 433 aircraft engines at the end of 2014 compared to 403 at the end of 2013.

39



In 2014, we sold our investments in the Intermodal Investment Fund V and Intermodal Investment Fund VII affiliates. As a result of these sales, we received aggregate cash proceeds of $18.3 million.

In 2013, we dissolved our Singco and Somargas marine affiliates, with each partner taking direct ownership of five liquefied gas carrying vessels (the "Norgas vessels") with an aggregate value of $151.8 million, and recognized a pretax gain of $2.5 million, which is reflected in share of affiliates' earnings. In connection with the dissolution, we paid $101.3 million, primarily to satisfy our share of the affiliates' external debt. The vessels continue to operate in a vessel pooling arrangement managed by our former partner.

In 2012, our gas compression equipment leasing affiliate, Enerven Compression, LLC, sold substantially all of its assets. In connection with this disposition we recognized an impairment loss of $14.8 million, which is reflected in share of affiliates' earnings. In 2013, we reversed $1.1 million of the loss due to higher than expected proceeds from the asset sales. This joint venture is in the process of being liquidated.

Portfolio Management's total asset base was $813.3 million at December 31, 2014 compared to $856.9 million at December 31, 2013, and $797.4 million at December 31, 2012. The estimated net book value equivalent of assets managed by Portfolio Management for third parties was $64.1 million at December 31, 2014.

In 2015, we expect the RRPF affiliates to continue to produce strong operating results and benefit from gains from engine sales. In addition, we anticipate another solid year from the inland marine operations. However, the ocean-going vessels will likely continue to be negatively affected by inconsistent demand and vessel overcapacity in the international shipping markets.

The following table shows Portfolio Management’s segment results for the years ended December 31 (in millions):
 
2014
 
2013
 
2012
Revenues
 
 
 
 
 
Lease revenue
$
29.7

 
$
31.9

 
$
37.6

Marine operating revenue
63.3

 
51.6

 
26.4

Other revenue
4.4

 
3.7

 
2.8

   Total Revenues
97.4

 
87.2

 
66.8

 
 
 
 
 
 
Expenses
 
 
 
 
 
Marine operating expense
48.6

 
38.5

 
22.1

Depreciation expense
22.8

 
23.0

 
21.7

Operating lease expense

 

 
0.2

Other operating expense
1.9

 
2.4

 
0.9

   Total Expenses
73.3

 
63.9

 
44.9

 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
Net gain on asset dispositions
9.4

 
15.5

 
19.2

Interest expense, net
(24.3
)
 
(26.7
)
 
(27.7
)
Other (expense) income
(1.2
)
 
1.4

 
3.4

Share of affiliates' earnings (pretax)
60.2

 
60.9

 
33.4

Segment Profit   
$
68.2

 
$
74.4

 
$
50.2

 
 
 
 
 
 
Investment Volume   
$
32.3

 
$
170.5

 
$
83.5



40



Segment Profit

In 2014, segment profit was $68.2 million, compared to $74.4 million in 2013. The decrease was driven by lower asset remarketing income and lower aggregate net operating income from our marine operations, primarily from our ocean-going vessels, which include the Norgas vessels and six chemical parcel tankers ("Nordic vessels").

In 2013, segment profit was $74.4 million, compared to $50.2 million in 2012. The increase was driven by higher marine net operating income which includes the Norgas vessels that are now wholly owned, higher RRPF affiliates' earnings, and the absence of the Enerven impairment, partially offset by lower lease revenues.

Revenues

In 2014, lease revenue decreased $2.2 million, primarily due to the sale of leases throughout the prior and current year. Marine operating revenue increased $11.7 million, primarily due to higher inland marine revenue resulting from strong demand during the harvest season. In addition, 2014 includes a full year of revenue from the Norgas vessels.

In 2013, lease revenue decreased $5.7 million, primarily due to the sale of barges and other equipment. Marine operating revenue increased $25.2 million, primarily due to revenue from the Norgas vessels, which were acquired in April 2013.

Expenses
    
In 2014, marine operating expense increased $10.1 million, primarily due to higher expenses for inland marine. Additionally, 2014 reflects a full year of operations for the Norgas vessels.


41


In 2013, marine operating expense increased $16.4 million, primarily due to the Norgas vessels acquired in April 2013. Depreciation expense increased $1.3 million, also due to the Norgas vessels, partially offset by sales of equipment previously on lease. Other operating expense increased $1.5 million, primarily due to the reversal of a provision for losses upon the sale of a non-performing leveraged lease investment in the prior year.

Other Income (Expense)

In 2014, net gain on asset dispositions decreased $6.1 million, primarily due to fewer asset dispositions. Net interest expense decreased $2.4 million, primarily due to lower rates. Other expense increased $2.6 million, primarily due to the expense associated with a revenue sharing agreement adjustment related to the Nordic vessels and insurance proceeds received in 2013 related to a vessel casualty.

In 2014, share of affiliates' earnings decreased $0.7 million, primarily due to the dissolution of Singco/Somargas II in the prior year and fewer engine sales at RRPF. In 2014, our share of RRPF affiliates' earnings of $55.9 million included gains of $11.1 million resulting from the sales of engines.

In 2013, net gain on asset dispositions decreased $3.7 million, primarily due to lower residual sharing receipts. Interest expense decreased $1.0 million, primarily due to lower rates. Other income was positively impacted by the favorable remeasurement of derivatives in 2012.

In 2013, share of affiliates' earnings increased $27.5 million. The variance was primarily due to the absence of operating losses and an impairment loss at our Enerven affiliate in 2012. In 2013, our share of RRPF affiliates' earnings of $52.6 million included gains of $17.6 million resulting from the sales of engines.

Investment Volume

Investment volume of $32.3 million in 2014 consisted of $10.5 million for two tank barges and one pushboat, $6.5 million for 13 new hopper barges and $15.3 million of incremental investment in an RRPF affiliate.

Investment volume of $170.5 million in 2013 consisted of a $101.3 million contribution to the Singco and Somargas joint ventures primarily to satisfy our share of the affiliates' debt, $47.9 million for marine vessels and equipment, $14.2 million for investments in loans for dry bulk vessels, and $7.1 million for investments in container assets.

Investment volume in 2012 primarily consisted of $37.0 million for investments in barges and other marine equipment, $29.7 million for investments in affiliates, and $14.9 million for investments in container assets.

OTHER
Other is comprised of selling, general and administrative expenses (“SG&A”), unallocated interest expense, and miscellaneous income and expense not directly associated with the reporting segments and eliminations.

The following table shows components of other for the years ended December 31 (in millions):
 
2014
 
2013
 
2012
Selling, general and administrative expense
$
189.2

 
$
178.3

 
$
160.2

Unallocated interest expense, net
5.4

 
3.8

 
5.4

Other expense (income) (including eliminations)
1.6

 
(1.1
)
 
(1.3
)

SG&A, Unallocated Interest and Other

In 2014, SG&A of $189.2 million increased $10.9 million. The increase includes an accrual for costs associated with the planned closure of our San Francisco office in early 2015, which will impact approximately 35 employees through workforce reductions or relocation. In addition, SG&A was negatively impacted by the impairment of an IT project, higher compensation expenses, information technology expenses, and increased group insurance costs.

42



In 2013, SG&A of $178.3 million increased $18.1 million, or 11.3%, from 2012. The increase was primarily due to higher pension and compensation expenses.

Unallocated interest expense (the difference between external interest expense and amounts allocated to the reporting segments in accordance with assigned leverage targets) in any year is affected by our consolidated leverage position as well as the timing of debt issuances and investing activities.

Other expense and eliminations were immaterial in each of 2014, 2013, and 2012.

Consolidated Income Taxes

See "Note 13. Income Taxes" in Part II, Item 8 of this Form 10-K.


43


BALANCE SHEET DISCUSSION

Assets

Total assets (including on- and off-balance sheet) were $7.6 billion at December 31, 2014, compared to $7.5 billion at December 31, 2013. The increase was largely driven by an increase in operating assets, including the purchase of approximately 18,500 boxcars for approximately $340 million, partially offset by a decrease in cash and cash equivalents. In addition to the assets we recorded on our balance sheet, we utilized off-balance-sheet assets, primarily railcars, which we leased in pursuant to operating lease agreements. The off-balance-sheet assets represent the estimated present value of our committed future operating lease payments.

The following table shows on- and off-balance-sheet assets by segment as of December 31 (in millions):
 
2014
 
2013
 
 
 
On-Balance-Sheet
 
Off-Balance-Sheet
 
Total
 
On-Balance-Sheet
 
Off-Balance-Sheet
 
Total
Rail North America
$
4,358.3

 
$
606.1

 
$
4,964.4

 
$
3,710.5

 
$
887.9

 
$
4,598.4

Rail International
1,229.4

 

 
1,229.4

 
1,297.1

 

 
1,297.1

ASC
286.7

 
11.7

 
298.4

 
271.0

 
16.5

 
287.5

Portfolio Management
813.3

 

 
813.3

 
856.9

 

 
856.9

Other
249.8

 

 
249.8

 
414.1

 

 
414.1

 
$
6,937.5

 
$
617.8

 
$
7,555.3

 
$
6,549.6

 
$
904.4

 
$
7,454.0


Gross Receivables

Receivables of $358.0 million at December 31, 2014 decreased $52.1 million from December 31, 2013, primarily due to the repayments of certain direct financing leases and other loans.

Allowance for Losses

As of December 31, 2014, general allowances for trade receivables were $4.5 million, or 5.2% of rent and other receivables, compared to $4.0 million, or 4.9%, at December 31, 2013. At December 31, 2014, specific allowances of $1.2 million were comparable to prior year.

See "Note 18. Allowance for Losses" in Part II, Item 8 of this Form 10-K.

Operating Assets and Facilities

Net operating assets and facilities increased $617.7 million from 2013. The increase was primarily due to new investments of $1,009.2 million, including the acquisition of the Boxcar Fleet, and purchase of leased-in assets of $150.5 million, offset by foreign exchange rate effects of $141.3 million, depreciation expense of $278.9 million and dispositions of $129.1 million.

Investments in Affiliated Companies

Investments in affiliated companies increased $3.4 million in 2014 (see table below). The increase at Portfolio Management was primarily due to the incremental investment in an RRPF affiliate related to the purchase of spare aircraft engines, partially offset by the sale of two joint ventures. The decrease at Rail North America was largely due to cash distributions received from an affiliate associated with the sale of substantially all of its remaining railcar and locomotive assets.


44


The following table shows our investments in affiliated companies by segment as of December 31 (in millions):
 
2014
 
2013
Rail North America
$
17.2

 
$
31.4

Rail International
1.8

 
2.0

Portfolio Management
338.7

 
320.9

 
$
357.7

 
$
354.3


See "Note 7. Investments in Affiliated Companies" in Part II, Item 8 of this Form 10-K.

Goodwill

In 2014 and 2013, changes in the balance of our goodwill, all of which are attributable to the Rail North America and Rail International segments, resulted from changes in foreign currency exchange rates. We tested our goodwill for impairment in the fourth quarter of 2014 and no impairment was indicated.

See "Note 17. Goodwill" in Part II, Item 8 of this Form 10-K.

Debt

Total debt increased $403.2 million from the prior year, primarily due to issuances of long-term debt of $1,230.2 million and $50.0 million of commercial paper and credit facilities, partially offset by scheduled maturities and principal payments of $819.8 million.

The following table shows the details of our long-term debt issuances in 2014 ($ in millions):
Type of Debt
 
Term
 
Interest Rate (1)
 
Principal Amount
Recourse Unsecured
 
30.0 Years
 
5.20% Fixed
 
$
300.0

Recourse Unsecured
 
3.0 Years
 
1.25% Fixed
 
300.0

Recourse Unsecured
 
5.4 Years
 
2.50% Fixed
 
250.0

Recourse Unsecured
 
5.4 Years
 
2.60% Fixed
 
250.0

Recourse Unsecured
 
10.0 Years
 
1.54% Floating
 
100.0

Recourse Unsecured
 
6.7 Years
 
1.99% Floating
 
30.2

 
 
 
 
 
 
$
1,230.2

________
(1)
Floating interest rates at December 31, 2014.

45



The following table shows the carrying value of our debt obligations by major component, including off-balance-sheet debt, as of December 31, 2014 (in millions):
 
Secured
 
Unsecured
 
Total
Commercial paper and borrowings under bank credit facilities
$

 
$
72.1

 
$
72.1

Recourse debt

 
4,179.9

 
4,179.9

Nonrecourse debt
15.9

 

 
15.9

Capital lease obligations
6.3

 

 
6.3

Balance sheet debt
22.2

 
4,252.0

 
4,274.2

Recourse off-balance-sheet debt (1)
566.7

 

 
566.7

Nonrecourse off-balance-sheet debt (1)
51.1

 

 
51.1

 
$
640.0

 
$
4,252.0

 
$
4,892.0

________
(1) Off-balance-sheet debt represents the estimated present value of committed operating lease payments and is equal to the amount reported as off-balance-sheet assets.

See "Note 9. Debt" in Part II, Item 8 of this Form 10-K.

Equity

Total equity decreased $83.0 million from the prior year, primarily due to $124.6 million of stock repurchases, $79.1 million of foreign currency translation adjustments due to the balance sheet effects of a stronger US dollar, $61.7 million of dividends paid, and $29.5 million from the effects of post-retirement benefit plan adjustments. These decreases were partially offset by net income of $205.0 million, $4.0 million from the effects of share-based compensation, and $2.9 million from changes in the fair value of derivative instruments and other securities.

See "Note 20. Shareholders’ Equity" in Part II, Item 8 of this Form 10-K.


CASH FLOW DISCUSSION

We generate a significant amount of cash from operating activities and from our investment portfolio. We also access domestic and international capital markets by issuing unsecured or secured debt and commercial paper. We use these sources of cash, along with our available cash balances, to fulfill our debt, lease, and dividend obligations and to fund portfolio investments and capital additions. We primarily use cash from operations and commercial paper issuances to fund daily operations.

The timing of asset dispositions and changes in working capital impact cash flows from operations and portfolio proceeds. As a result, these cash flow components may vary materially from quarter to quarter and year to year. As of December 31, 2014, we had unrestricted cash balances of $209.9 million.

Net Cash Provided by Operating Activities

Net cash provided by operating activities of $449.2 million increased $48.5 million compared to 2013. Increases in lease revenue and dividend distributions from affiliates were partially offset by increased maintenance expense and the timing of other changes in working capital.


46


Portfolio Investments and Capital Additions

Portfolio investments and capital additions primarily consist of purchases of operating assets, investments in affiliates, loans, and capitalized asset improvements. Portfolio investments and capital additions of $1,030.5 million increased $170.9 million compared to 2013 and included Rail North America's purchase of approximately 18,500 boxcars for approximately $340 million. This increase was partially offset by Portfolio Management's $101.3 million contribution to the Singco and Somargas joint ventures in 2013. The timing of investments depends on purchase commitments, transaction opportunities, and market conditions.

The following table shows portfolio investments and capital additions by segment for the years ended December 31 (in millions):
 
2014
 
2013
 
2012
Rail North America (1)
$
810.6

 
$
502.4

 
$
465.9

Rail International
163.6

 
168.5

 
200.1

ASC
18.4

 
11.2

 
12.6

Portfolio Management (2)
32.3

 
170.5

 
83.5

Other
5.6

 
7.0

 
7.9

 
$
1,030.5

 
$
859.6

 
$
770.0

___________________
(1) Rail North America's investment volume includes approximately $340 million related to the purchase of approximately 18,500 boxcars in 2014.
(2) Portfolio Management’s investment volume includes $101.3 million related to the Singco and Somargas dissolution in 2013.
Portfolio Proceeds

Portfolio proceeds primarily consist of loan and finance lease receipts, proceeds from sales of operating assets, proceeds from sales of securities, and capital distributions from affiliates. The decrease in proceeds in 2014 was primarily due to the absence of proceeds from the sale of our interest in AAE in 2013 and lower sales proceeds from operating assets. The increase in proceeds from sales of operating assets in 2013 compared to 2012 was primarily due to higher equipment sales and capital distributions from affiliated companies. Proceeds from sales of operating assets in 2012 included $82.5 million from the sale of leveraged lease investments.
    
The following table shows portfolio proceeds for the years ended December 31 (in millions):
 
2014
 
2013
 
2012
Finance lease rents received, net of earned income and leveraged lease nonrecourse debt service
$
12.5

 
$
16.6

 
$
13.8

Loan principal received
14.9

 
13.5

 
4.2

Proceeds from sales of operating assets
202.1

 
285.9

 
235.3

Other investment distributions and sales of securities
0.3

 

 
3.7

Capital distributions from affiliates
33.6

 
68.1

 
30.6

Other portfolio proceeds
0.6

 
1.2

 
1.3

 
$
264.0

 
$
385.3

 
$
288.9


Other Investing Activity

Rail North America acquired 4,560 railcars in 2014, 2,967 railcars in 2013, and 47 railcars in 2012 that were previously on operating leases. Proceeds from sales of other assets for all periods were primarily related to railcar scrapping. Rail North America completed sale-leasebacks for 710 railcars in 2013 and 1,062 railcars in 2012.


47


Our restricted cash is primarily contractually required cash amounts we maintain for two wholly owned bankruptcy-remote, special purpose corporations. The special purpose corporations were formed in prior years to finance railcars on a structured, nonrecourse basis. Changes in restricted cash largely represent the net change in the cash we maintain for the special purpose corporations that result from their operating and financing activities. We expect our contributions to restricted cash to limit payment shortfalls in the future, thus preventing interest and penalties that might otherwise be incurred under the terms of the applicable financing arrangements.

The following table shows other investing activity for the years ended December 31 (in millions):
 
2014
 
2013
 
2012
Purchases of leased-in assets
$
(150.5
)
 
$
(61.4
)
 
$
(1.3
)
Proceeds from sales of other assets
26.9

 
32.3

 
28.4

Proceeds from sale-leasebacks

 
90.7

 
104.9

Net decrease in restricted cash
5.8

 
9.5

 
5.5

Other
5.8

 

 

 
$
(112.0
)
 
$
71.1

 
$
137.5


Net Cash provided by Financing Activities

The following table shows net cash provided by (used in) financing activities for the years ended December 31 (in millions):
 
2014
 
2013
 
2012
Net proceeds from issuances of debt (original maturities longer than 90 days)
$
1,223.0

 
$
1,132.2

 
$
445.2

Repayments of debt (original maturities longer than 90 days)
(819.8
)
 
(602.8
)
 
(671.2
)
Net increase (decrease) in debt with original maturities of 90 days or less
50.0

 
(251.3
)
 
243.3

Payments on capital lease obligations
(2.6
)
 
(2.4
)
 
(3.0
)
Stock repurchases (1)
(124.6
)
 
(68.6
)
 

Cash dividends
(62.0
)
 
(60.5
)
 
(58.8
)
Other
(1.8
)
 
2.5

 
4.6

 
$
262.2

 
$
149.1

 
$
(39.9
)
________
(1) In 2014, our board of directors authorized a $250 million share repurchase program. During the year, we purchased 1.9 million shares of common stock for $124.6 million. In 2013, we purchased 1.4 million shares of common stock for $68.6 million, which completed our $200 million repurchase authorization approved in 2008.


LIQUIDITY AND CAPITAL RESOURCES

General

We fund our investments and meet our debt, lease, and dividend obligations using our available cash balances, as well as cash generated from operating activities, sales of assets, commercial paper issuances, committed revolving credit facilities, distributions from affiliates, and issuances of secured and unsecured debt. We primarily use cash from operations and commercial paper issuances to fund daily operations. We use both domestic and international capital markets and banks to meet our debt financing needs.


48


Contractual and Other Commercial Commitments

The following table shows our contractual commitments, including debt principal payments, lease payments, and portfolio investments at December 31, 2014 (in millions):
 
Payments Due by Period
 
Total
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
Recourse debt
$
4,187.9

 
$
520.2

 
$
632.3

 
$
455.4

 
$
507.5

 
$
592.3

 
$
1,480.2

Nonrecourse debt
15.9

 
9.0

 
6.9

 

 

 

 

Commercial paper and credit facilities
72.1

 
72.1