10-K/A 1 gatx-2012x10ka.htm 10-K/A GATX-2012-10K/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
Form 10-K/A
(Amendment No. 1)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2012
 
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
$2.50 Cumulative Convertible Preferred Stock, Series A
New York Stock Exchange
Chicago Stock Exchange
$2.50 Cumulative Convertible Preferred Stock, Series B
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.  
þ

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 $1.8 billion as of June 30, 2012.

As of January 31, 2013, 47.0 million common shares were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
GATX’s definitive Proxy Statement to be filed on or about March 15, 2013
PART III






EXPLANATORY NOTE

GATX Corporation (the "Company") is filing this Amendment No. 1 (the "Amended Filing") to its Annual Report on Form 10−K for the year ended December 31, 2012, filed with the United States Securities and Exchange Commission on February 26, 2013 (the "Original Filing"), solely to correct typographical errors in the certifications contained in Exhibits 31.2 and 32 to the Original Filing.

Except as described above, this Amended Filing does not modify or update the disclosures presented in, or exhibits to, the Original Filing. The Original Filing, as corrected, is hereby refiled in its entirety.



2



GATX CORPORATION
2012 FORM 10-K
INDEX
Item No.
 
Page No.
Part I
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


PART I

Item 1. Business

GENERAL

Headquartered in Chicago, Illinois, GATX Corporation (“GATX” or the “Company”) leases, operates, manages and remarkets long-lived, widely-used assets, primarily in the rail and marine markets. GATX also invests in joint ventures that complement existing business activities. In 2012, the Company modified the composition of its reportable segments to reflect an increasing focus on international growth and related changes in its management structure. As a result, the Company now reports financial results through four primary business segments: Rail North America, Rail International, American Steamship Company (“ASC”) and Portfolio Management. All segment information is presented on this basis.
 
The following description of GATX’s business should be read in conjunction with the information contained in 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 Notes 21 and 23 to the consolidated financial statements.

At December 31, 2012, GATX had total assets of $6.9 billion, comprised largely of railcars, marine vessels and joint venture investments. This amount included $0.9 billion of off balance sheet assets, primarily railcars, that were financed with operating leases and therefore were not recorded on the balance sheet.

OPERATIONS
GATX RAIL BUSINESS OVERVIEW

GATX and its rail affiliates lease tank cars, freight cars and locomotives in North America, Europe and India. GATX is also exploring rail leasing opportunities in Russia and China through wholly-owned subsidiaries as well as joint venture arrangements. GATX's wholly-owned fleet consists of approximately 131,000 railcars and 561 locomotives with an aggregate net book value of $5.1 billion (including off balance sheet assets) as of December 31, 2012. GATX's rail fleet is one of the largest privately-owned railcar fleets in the world, and with over a century of rail industry experience, GATX offers customers financial, asset, maintenance, and management expertise. GATX also has an ownership interest in approximately 30,000 railcars through investments in affiliated companies. Affiliate fleets consist primarily of freight and intermodal railcars. In addition, GATX actively manages fleets for an affiliate and other third-party owners of approximately 5,200 railcars and utilizes its extensive rail asset knowledge and experience to remarket both wholly-owned and managed rail assets. The following table sets forth GATX’s worldwide rail fleet data as of December 31, 2012:

 
Tank
Railcars
 
Freight
Railcars
 
Total Fleet
 
Affiliate
Railcars
 
Managed
Railcars
 
Total Railcars
 
Locomotives
North America
57,781

 
51,770

 
109,551

 
6,031

 
1,113

 
116,695

 
561

International
20,397

 
1,443

 
21,840

 
24,444

 
15

 
46,299

 

 
78,178

 
53,213

 
131,391

 
30,475

 
1,128

 
162,994

 
561



2


GATX's rail customers primarily operate in the chemical, petroleum, food/agriculture and transportation industries. GATX's worldwide railcar fleet consists of a diverse selection of railcar types that are used by its customers to ship approximately 700 different commodities. The following table provides information on some of the major railcar types that GATX leases to its rail customers and the primary commodities shipped in these railcars.

General Service
Tank Cars



High Pressure
Tank Cars
Specialty & Acid Tank Cars

Specialty
Covered
Hoppers


Gravity
Covered
 Hoppers



Open Top
Cars

Chemical
Chemical
Chemical
Plastics
Agriculture
Energy
Petroleum
Petroleum
Petroleum
Food
Industrial
Construction
Food
 
 
Industrial
Energy
Steel
Agriculture
 
 
Energy
Construction
Waste/Recycling
Construction
 
 
 
 
Forest Products
 
 
 
 
 
 
Biofuels
Liquefied Petroleum Gas (LPG)
Acids (Sulfuric, Hydrochloric, Phosphoric, Acetic, Nitric, etc.)
High Density Polyethylene (PE)
Grain Products
Coal
Fertilizers and Fertilizer Ingredients
Vinyl Chloride Monomer (VCM)
Coal Tar Pitch
Polyethylene Terephthalate (PET)
Solid Fertilizer
Coke (Petroleum and Metallurgical)
Lubricating Oils
Propylene
Dyes, Inks
Polypropylene
Sand
Taconite
Edible Oils and Syrups
 
Hydrogen Peroxide
Polyvinyl Chloride
Cement
Aggregates
Asphalt
 
Caprolactam
Sugar
Fly Ash
Woodchips
Fuel Oil
 
 
Flour
Roofing Granules
Industrial Minerals
Crude Oil
 
 
Cement
Minerals
Scrap Metal
Chemicals (Sodium Hydroxide, Styrene, etc.)
 
 
Fly Ash
 
Solid Waste

 




3


RAIL NORTH AMERICA

Rail North America is comprised of GATX's wholly-owned operations in the United States, Canada and Mexico, as well as two affiliate investments. 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 30 to 38 years and an average age of approximately 16 years. Rail North America has a large and diverse customer base, serving approximately 700 customers. In 2012, no single customer accounted for more than 5% of Rail North America’s total lease income, and the top ten customers combined accounted for approximately 24% of Rail North America’s total lease income. Rail North America leases new railcars for terms that generally range from one 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, 2012. Rail North America’s primary competitors are Union Tank Car Company, General Electric Railcar Services Corporation, American Railcar Leasing, Trinity Leasing, CIT Group Inc., and First Union Rail. Rail North America competes on the basis of customer relationships, lease rate, maintenance expertise, service capability and availability of railcars.
 
Rail North America purchases new railcars from a number of manufacturers, including Trinity Industries, American Railcar Industries, Inc., National Steel Car Ltd., and The Greenbrier Companies. In 2011, GATX entered into an agreement to acquire 12,500 newly built railcars from Trinity Industries that are delivering ratably over a five-year period. As of December 31, 2012, approximately 9,300 railcars remain to be delivered under the agreement. In addition, GATX acquires portfolios or fleets of railcars in the secondary market.
 
Rail North America also includes a locomotive leasing business, which consisted of 514 four-axle and 47 six-axle locomotives at December 31, 2012. Four-axle locomotives continue to be in demand by railroads and shippers despite not having been manufactured in any material quantity since the mid-1980s. The four-axle fleet, with periodic refurbishment, is expected to continue to be marketable and yield attractive returns. 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, 2012, the average remaining lease term of the locomotive fleet was 22 months. Rail North America's primary competitors in locomotive leasing are Helm Financial Corporation, 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 certain affiliates. Remarketing activities often generate fees and gains from these asset sales, 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 throughout the lease term and the useful life of the asset. 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 virtually any repair or modification project.
Two field repair centers that can perform most repair and maintenance activities.
Six customer-dedicated sites operating solely within specific customer facilities that offer services tailored to the needs of the particular customers’ fleets.
Three “Fast Track” locations in the United States that are smaller in size and scale than major service centers and primarily focus on routine cleaning, repair and regulatory compliance services.
Twenty mobile repair units that are able to travel to many track-side field locations and provide spot repairs and interior cleaning services, avoiding the need to otherwise shop a railcar.

4


The maintenance network is supplemented by a number of preferred third-party service centers. In certain cases, GATX has entered into fixed-capacity contracts with these service centers under which Rail North America has secured access to repair capacity. In 2012, third-party service centers accounted for approximately 39% of Rail North America’s service center maintenance costs (excluding the cost of repairs performed by railroads).

In 2012, wholly-owned and third party service centers performed an aggregate of approximately 82,000 service events, including multiple independent service events for the same car.

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, 2012, Adler owned approximately 4,100 railcars in North America consisting primarily of general purpose freight cars with an average age of approximately nine years.

Southern Capital Corporation LLC (“SCC”) is a 50%-owned joint venture with the Kansas City Southern Railroad (“KCSR”). SCC was formed in 1996 and controls approximately 2,000 freight cars and 48 locomotives, all of which are on lease to KCSR.

RAIL INTERNATIONAL

Rail International is comprised of GATX's wholly-owned European operations ("Rail Europe") and its newly established railcar leasing business in India ("Rail India"), as well as two affiliate investments. Rail Europe leases railcars, predominantly tank cars 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 30 to 38 years and an average age of approximately 22 years. Rail Europe has a diverse customer base with over 200 customers. In 2012, two customers each accounted for more than 10% of Rail Europe's total lease income and the top ten customers combined accounted for approximately 60% of Rail Europe's total lease income. Rail Europe's lease terms generally range from one to seven years and at December 31, 2012, the average remaining lease term of the European fleet was approximately two years. Rail Europe principally competes 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.

Rail Europe acquires new railcars primarily from Astra Rail Industries S.R.L. and VRZ Karlovo. Additionally, Rail Europe's Ostróda, Poland maintenance facility assembles several hundred Rail Europe tank cars each year. As of December 31, 2012, Rail Europe has commitments to acquire 1,500 newly manufactured railcars to be delivered in 2013 and 2014. Commitments to purchase an additional 2,000 new railcars through 2015 exist but are subject to cancellation provisions at Rail Europe's discretion.

Rail India began operations in 2012 and was the first leasing company registered under the Indian Railways Wagon Leasing Scheme. Rail India took delivery of its first 46 newly manufactured flat wagon railcars in December 2012. In 2013, Rail India will focus on pursuing further investment opportunities in new and existing flat wagons, and developing relationships with customer and suppliers as well as with the Indian Railways.

Maintenance

Rail Europe 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 2012 accounted for approximately 52% of Rail Europe's fleet repair costs.

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


5


Rail International Affiliates

AAE Cargo AG (“AAE”) is a 37.5% owned Switzerland-based railcar lessor that, as of December 31, 2012, owned approximately 24,500 freight cars, comprised of 60% intermodal cars, 15% covered cars and 25% other freight car types, with an average age of 13 years. AAE’s customer base consists of various railways throughout Europe as well as private operators. As of December 31, 2012, the average remaining lease term of AAE railcars was approximately two years.

In 2012, IMC-GATX Financial Leasing (Shanghai) Co., Ltd. (“IMC-GATX China”) was established as a 50% owned China-based joint venture between GATX and IMC Pan Asia Alliance Group (“IMC”). IMC is a well-established shipping enterprise with experience operating in China and is also a partner with GATX 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. IMC-GATX China may also pursue non-rail leasing opportunities.

ASC

ASC operates the largest fleet of U.S. flagged vessels on the Great Lakes, providing waterborne transportation of dry bulk commodities such as iron ore, coal, limestone aggregates and metallurgical limestone. End markets for these commodities include 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, 2012, ASC’s fleet consisted of 18 vessels with a net book value of $305.2 million, including $21.0 million of off balance sheet assets. Fourteen of the vessels are diesel powered, have an average age of 35 years and estimated useful lives of 65 years. The length of the diesel vessels ranges from 635 to 1,004 feet and they have maximum load capacities between 23,800 and 80,900 gross tons. Three steam powered vessels were built in the 1940s and 1950s and have estimated remaining useful lives of seven years. The length of the steamer vessels ranges from 690 to 767 feet and they have maximum load capacities between 22,300 and 26,300 gross tons. The other vessel in ASC's fleet is a newly manufactured articulated tug-barge, which is leased in under an operating lease that expires in 2018. The tug is diesel powered and the barge is 740 feet in length with a carrying capacity of 34,000 gross tons. Seventeen of ASC’s vessels are generally available for both service contract and spot business, while one vessel has dedicated service under a time charter agreement that is scheduled to expire in 2015. ASC’s vessels operate exclusively in the fresh water conditions 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 2012, ASC served 20 customers with the top five customers comprising 84% of ASC’s total revenue.

    

ASC’s vessels operate pursuant to customer contracts that stipulate committed freight volume each year that may be supplemented with additional spot volume opportunities. In 2012, ASC operated 14 vessels and carried 29.7 million net tons of cargo. ASC has a relatively stable customer portfolio that includes a mix of companies in the steel production, electric utility and construction industries. The number of vessels deployed by ASC in any given year is dependent on customer volume requirements. In response to demand, ASC may choose not to operate certain vessels.

6



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

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

PORTFOLIO MANAGEMENT

Portfolio Management is an aggregation of a group of diversified owned assets and joint venture investments ("affiliates") and provides leasing, asset remarketing and asset management services. Portfolio Management selectively invests in long-lived, widely used assets with a focus on domestic marine and container related equipment and extends its market reach through affiliate investments.


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

 
 
Owned Assets *
 
Affiliate Investments
 
Managed
Assets
2012
$
419.5

 
$
377.9

 
$
143.2

2011
475.0

 
371.6

 
166.7

2010
399.3

 
345.1

 
204.6

_________
* Includes off balance sheet assets

Owned and Managed Assets

Portfolio Management's wholly-owned portfolio primarily consists of investments in operating assets, finance lease assets and secured loans. Operating and finance lease assets include chemical parcel tankers, shipping containers, inland marine barges, gas compression equipment, biofuel equipment, and other transportation equipment. Operating assets have estimated useful lives of 3 to 30 years. Operating assets are either placed with customers under operating leases, the majority of which expire by 2018, or in the case of certain marine assets, are operated by a service provider under pooling arrangements. Portfolio Management also remarkets assets, generating portfolio proceeds and asset disposition gains and losses.

7



Portfolio Management further leverages its equipment knowledge by managing portfolios of assets for third parties. The majority of these managed assets are in markets where GATX has a high level of expertise. Portfolio Management generates fee and residual sharing income through portfolio administration and remarketing of these assets.

Portfolio Management’s principal competitors are captive leasing companies of equipment manufacturers, leasing subsidiaries of commercial banks and independent leasing companies. Factors that affect Portfolio Management’s ability to compete are equipment expertise, GATX’s relationships, relative cost of funds, and the availability of other financing alternatives to potential customers.

Affiliates

Portfolio Management's investments in affiliated companies primarily include aircraft engine leasing and shipping operations. Portfolio Management invests in joint ventures to expand its presence in key markets, expand geographically and diversify risks. 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, 2012, the RRPF Affiliates, in aggregate, owned 402 engines, of which 176 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 usage and with proper maintenance, may achieve extended service well beyond the useful life estimate. As of December 31, 2012, the average age of these engines was approximately 9 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 six 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 U.S. Gulf/Far East trades.

Somargas II Private Limited (“Somargas”) and Singco Gas Pte, Limited (“Singco”), respectively, are 35% and 50%-owned joint ventures with IM Skaugen ASA (“Skaugen”). Skaugen is a 96-year old Norwegian company that operates a fleet of approximately 40 vessels primarily engaged in the transport of petrochemical gases and the ship to ship transfer of crude oil and liquefied natural gas (“LNG”). Somargas owns six liquid petroleum gas/ethylene vessels (each with 8,500 - 10,000 cubic meters (“cbm”) carrying capacity). Singco owns four liquid petroleum gas/ethylene/LNG vessels (each with 10,000 cbm carrying capacity). The Somargas and Singco vessels operate under a pooling arrangement with the Skaugen fleet. The major trade lanes are the Arabian Peninsula to South Asia and the Far East.

Intermodal Investment Funds V and VII are each 50%-owned joint ventures with DVB Bank SE. The affiliates were formed to finance shipping containers, which are on direct finance leases to third parties.

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, the Clipper Third partners sold the affiliate's remaining assets and discontinued the joint venture.

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, the Enerven partners sold substantially all of the assets and are in the process of liquidating the joint venture.

In 2011, the Clipper Fourth Limited and Clipper Fourth APS marine joint ventures, in each of which GATX held a 45% interest, were dissolved. In connection with the dissolutions, GATX took ownership of six chemical parcel tankers.

8




TRADEMARKS, PATENTS AND RESEARCH ACTIVITIES

Patents, trademarks, licenses and research and development activities are not material to GATX’s 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.

EMPLOYEES AND EMPLOYEE RELATIONS

As of December 31, 2012, GATX employed 2,046 persons, of whom 35% were union workers covered by collective bargaining agreements.

The hourly employees at Rail North America’s three major U.S. service centers are represented by the United Steelworkers. Employees at three of Rail North America’s Canadian service centers are represented by to the Communication, Energy and Paperworkers Union of Canada. The shipboard personnel at ASC are represented by the American Maritime Officers and the Seafarers International Union.

As of January 31, 2013, the terms and status of GATX's existing collective bargaining agreements were as follows:
Union
Percent of Employees Represented
Status of the Agreements
United Steelworkers
16%
Expires in February 2013 (the parties are currently engaged in good faith bargaining for a new labor agreement).
Seafarers International Union
7%
Two agreements; one expires in June 2016 and one in January 2017.
American Maritime Officers
6%
Expires in January 2017.
Communications, Energy and Paperworks Union of Canada
4%
Three agreements; two expire in January 2014 and one expired in January 2013 (the parties are currently engaged in good faith bargaining for a new labor agreement).
Employee Shop Committee of Riviere-des-Prairies
2%
Expires in December 2013.

ENVIRONMENTAL MATTERS

GATX's 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 liability to the Company. Environmental risks and compliance with applicable environmental laws and regulations are inherent in rail operations, which frequently involve transporting chemicals and other hazardous materials.


9


GATX is subject to, and may from time to time continue to be subject to, environmental cleanup and enforcement actions in the U.S. and in the foreign countries in which it operates. 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, GATX has 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 GATX, its 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, 2012, environmental costs were not material to GATX's financial position, results of operations or cash flows. For further discussion, see Note 22 to the consolidated financial statements.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following information regarding GATX’s executive officers is included in Part I in lieu of inclusion in the definitive GATX Proxy Statement:

 
 
Name
 
 
Offices Held
Position Held Since
 
Age
Brian A. Kenney
Chairman, President and Chief Executive Officer
2005
 
53
Robert C. Lyons
Executive Vice President and Chief Financial Officer
2012
 
49
James F. Earl
Executive Vice President and President, GATX Rail International
2012
 
56
Deborah A. Golden
Executive Vice President, General Counsel and Corporate Secretary
2012
 
58
Michael T. Brooks
Senior Vice President and Chief Information Officer
2008
 
43
Thomas A. Ellman
Senior Vice President and Chief Commercial Officer
2011
 
44
Curt F. Glenn
Senior Vice President, Portfolio Management
2007
 
58
Mary K. Lawler
Senior Vice President, Human Resources
2008
 
47
William M. Muckian
Senior Vice President, Controller and Chief Accounting Officer
2007
 
53
Nicholas J. Matthews
Vice President and Group Executive, Operations
2010
 
40

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 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, GATX Corporation and President, GATX 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.

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.

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Mr. Brooks has served as Senior Vice President and Chief Information Officer since November 2008. 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. Ellman has served as Senior Vice President and Chief Commercial Officer since 2011. Previously, Mr. Ellman served as 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.

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.
    
Ms. Lawler has served as Senior Vice President, Human Resources since 2008. Prior to joining GATX, Ms. Lawler served as Senior Vice President, Operations of Newsday, a Tribune Publishing Company. She joined Tribune Company in 1997 as Human Resources Counsel.

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. Matthews has served as Vice President and Group Executive, Operations, since April 2010. Prior to joining GATX, Mr. Matthews served as Senior Vice President of Operations for FreightCar America from 2007 to April 2010. He began his rail industry career with Trinity Industries, working through a variety of operational, commercial and strategic roles.

AVAILABLE INFORMATION

GATX makes available free of charge at its website, www.gatx.com, its 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 U.S. 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 Officers are posted under Corporate Governance in the Investor Relations section of the GATX website, and are available in print upon request by any shareholder. Within the time period prescribed by SEC and New York Stock Exchange regulations, GATX will post on its website any amendment to the Code of Ethics for Senior Officers and the Code of Business Conduct and Ethics or any waivers thereof. The information on GATX’s website is not incorporated by reference into this report.

FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor provisions of those sections and the Private Securities Litigation Reform Act of 1995. These statements may appear throughout this report, including without limitation, in the sections entitled “Business”, “Risk Factors” and “Management's Discussion and Analysis”. Forward-looking statements refer to information that is not purely historical, such as estimates, projections and statements relating to our business plans, objectives and expected operating results, and the assumptions on which those statements are based. Some of these statements may be identified by words like “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project” or other similar words. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results or developments to differ materially from the forward-looking statements.

A detailed discussion of the known material risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in this report in Item 1A, “Risk Factors”. Specific risks and uncertainties include, but are not limited to, (1) general economic, market, regulatory and political conditions affecting the rail, marine and other industries served by GATX and its customers; (2) competitive factors in GATX's primary markets, including lease pricing and asset availability; (3) lease rates, utilization levels and operating costs in GATX's primary operating segments; (4) conditions in the capital markets or changes in GATX's credit ratings and financing costs; (5) risks related to GATX's international operations and expansion into new geographic markets;

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(6) risks related to compliance with, or changes to, laws, rules and regulations applicable to GATX and its rail, marine and other assets; (7) operational disruption and increased costs associated with compliance maintenance programs and other maintenance initiatives; (8) operational and financial risks associated with long-term railcar purchase commitments; (9) changes in loss provision levels within GATX's portfolio; (10) conditions affecting certain assets, customers or regions where GATX has a large investment; (11) impaired asset charges that may result from changing market conditions or portfolio management decisions implemented by GATX; (12) opportunities for remarketing income; (13) labor relations with unions representing GATX employees; and (14) the outcome of pending or threatened litigation.

Given these risks and uncertainties, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis, judgment, belief or expectation only as of the date hereof. GATX has based these forward-looking statements on information currently available and disclaims any intention or obligation to update or revise these forward-looking statements to reflect subsequent events or circumstances.

Item 1A.  Risk Factors

GATX is subject to a number of risks that investors should consider before investing in GATX’s securities. These risks include the factors described below as well as other information contained in this filing and GATX’s other filings with the U.S. Securities and Exchange Commission. If any of the events described below were to occur, GATX’s business, financial condition, results of operations and future growth prospects could suffer.

Competition could result in decreased profitability.

GATX operates in a highly competitive business environment. In many cases, competitors are larger entities that have greater financial resources, higher credit ratings and a lower cost of capital than GATX. These factors may enable competitors to offer leases and loans to customers at lower rates than GATX is able to provide, thus impacting GATX’s asset utilization or GATX’s ability to lease assets on a profitable basis.

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

GATX relies upon continued demand from its customers to lease its railcars, locomotives, marine assets and other equipment. Demand for these assets is dependent upon the markets for the products and services offered by the Company’s customers and the strength and growth of their businesses. A number of GATX’s customers operate in cyclical markets, such as the steel, chemical and construction industries, which are susceptible to macroeconomic downturns in the United States and abroad and may experience significant changes in demand over time.

Weak economic conditions in the United States and other parts of the world in recent years have reduced demand from certain GATX customers for the types of assets and services GATX provides. Continued weakness in certain sectors of the economy also may make it more difficult for GATX to lease certain types of railcars that are returned either at the end of a lease term or as a result of a customer bankruptcy or default. In Europe, the ongoing sovereign debt crisis, the loss of value by the Euro and related effects on the European banking system have contributed to growing instability in the European currency and credit markets. Further deterioration of European economic conditions or significant loss of value by the Euro could reduce demand for the Company’s European rail assets.

In many cases, demand for GATX’s assets is also dependent on customers’ desire to lease, rather than purchase assets. There are a number of items that factor into the customer’s decision to lease or purchase assets, such as tax and accounting considerations, interest rates and operational flexibility. GATX has no control over these external considerations, and changes in these factors, including potential changes to lease accounting rules, could negatively impact demand for its assets held for lease.

Additional factors influencing customer demand for GATX’s assets include changes in production volumes, potential changes in supply chains, choices regarding type of transportation asset, availability of substitutes and other operational needs. Demand for the marine assets and shipping services provided by the Company and its marine joint ventures is also dependent upon the factors discussed above. A significant decline in customer demand for the assets and services provided by GATX could adversely affect the Company’s financial performance.


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

GATX’s profitability is largely dependent on its ability to maintain assets on lease at satisfactory rates and to re-lease or sell assets upon lease expiration. A number of factors can adversely affect asset utilization rates and lease rates, including, but not limited to, an economic downturn causing reduced demand, changes in customer behavior, excess capacity in the marketplace or other changes in supply or demand for such assets. Economic uncertainty or a decline in customer demand for GATX’s assets could cause customers to demand shorter lease terms and lower lease rates and could result in a decrease in the utilization rate for GATX’s assets and reduced revenues. Alternatively, customers may seek to lock-in relatively low lease rates for longer terms thereby resulting in an adverse impact on current or future revenues.

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

Unlike certain of its competitors in the railcar leasing market, GATX does not manufacture railcars. GATX’s ability to acquire newly-built railcars could be limited if the Company is unable to procure railcars from manufacturers on competitive terms. 

In order to obtain committed access to a supply of newly-built railcars on competitive terms, GATX from time to time enters into long-term supply agreements with manufacturers to purchase significant numbers of newly-built railcars over a multi-year period. The Company’s purchase commitments under these long-term agreements generally are not subject to cancellation or material reduction by GATX. If economic conditions weaken during the term of a long-term supply agreement, GATX would be required to continue to accept delivery of, and pay for, new railcars at times when it is difficult for the Company to place the railcars with customers and the Company’s financing costs may be unattractively high.

GATX’s rail and marine assets and operations are subject to various laws, rules and regulations, and failure to comply with, or changes to, these laws, rules or regulations could have a significant negative effect on GATX’s business and profitability.

GATX’s rail and marine operations are subject to various laws, rules and regulations administered by authorities in jurisdictions where GATX does business. In the United States, GATX’s railcar fleet and operations are subject to rules and regulations relating to safety, operations, maintenance and mechanical standards promulgated by various federal and state agencies and industry organizations, including the U.S. Department of Transportation, the Federal Railroad Administration and the Association of American Railroads. In addition, state agencies regulate some aspects of rail operations with respect to health and safety matters not otherwise preempted by federal law. GATX’s business operations and its railcar fleet may be adversely impacted by rules and regulations promulgated by these governmental and industry agencies, which could require substantial modification, maintenance or refurbishment of GATX’s railcars or potentially make such railcars inoperable or obsolete. Violations of these rules and regulations can result in substantial fines and penalties, including potential limitations on operations or forfeitures of assets.

Similarly, GATX’s marine assets and operations are subject to regulation by various federal and state agencies, including the Maritime Administration of the U.S. Department of Transportation, the U.S. Coast Guard and the U.S. Environmental Protection Agency, which establish rules and regulations relating to safety, citizenship, emissions, ballast discharges and other environmental and operational matters. If GATX fails to comply with these rules and regulations, the Company could be prohibited from operating or leasing marine assets in the U.S. market and, under certain circumstances, could incur severe fines and penalties, including potential limitations on operations or forfeitures of assets.

In addition, GATX’s foreign operations are subject to the jurisdiction of authorities in countries where the Company does business. Failure to comply with, or future changes to, any of the foregoing laws, rules or regulations could restrict the use or reduce the economic value of GATX’s assets, including loss of revenue, or cause GATX to incur significant expenditures to comply, thereby increasing operating expenses. Certain changes to laws, rules and regulations, or actions by authorities under existing laws, rules or regulations, could result in the obsolescence of various assets or impose compliance costs that are so significant as to render such assets economically obsolete.

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

GATX performs a variety of maintenance programs on its full-service tank cars based upon their service time that are mandated by government regulations and industry rules. New government regulations or industry rules are enacted from time to time, which may

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affect the number and type of procedures required to be performed. These compliance programs are cyclical in nature and as a result, GATX 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 GATX's operations and substantially increase maintenance and other related costs. In addition, while GATX has contracted with third party maintenance providers to assist in performing these compliance procedures, GATX's access to these providers may be constrained or costs may increase substantially in times of high demand from other tank car owners for services from these same providers.
Deterioration of conditions in the global capital markets, weakening of macroeconomic conditions, and negative changes in credit ratings may limit the ability of GATX to secure financing and may increase its borrowing costs.

GATX relies, in large part, upon banks and capital markets to fund its 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 constrained for an extended period of time. In addition to conditions in the capital markets, a number of other factors could cause GATX to incur increased borrowing costs and to have greater difficulty accessing public and private markets for both secured and unsecured debt. These factors include GATX’s financial performance and its credit ratings and rating outlook as determined primarily by rating agencies such as Standard & Poor’s and Moody’s Investor Service. If GATX is unable to secure financing on acceptable terms, the Company’s other sources of funds, including available cash, bank facilities, cash flow from operations and portfolio proceeds, may not be adequate to fund its operations and contractual commitments.

GATX’s assets may become obsolete.

In addition to changes in laws, rules and regulations that may make assets obsolete, GATX may be adversely impacted by changes in the preferred method used by the Company’s customers to ship their products, changes in demand for particular products, or by a shift by customers toward purchasing assets rather than leasing them from GATX. The industries in which GATX’s customers operate are driven by dynamic market forces and trends, which are in turn influenced by economic and political factors in the United States and abroad. Demand for GATX’s rail and marine assets may be significantly affected by changes in the markets in which the Company’s customers operate. A significant reduction in customer demand for transportation or manufacture of a particular product or change in the preferred method of transportation used by customers to ship their products could result in the economic obsolescence of GATX assets leased by those customers.

Events or conditions negatively affecting certain assets, customers or geographic regions in which GATX has a large investment could have a negative impact on its results of operations.

GATX’s revenues are generally derived from a number of different asset types, customers, industries and geographic locations. However, from time to time, GATX 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 particular asset type, discrete events with respect to a specific customer or industry, or adverse regional economic conditions, particularly for those assets, customers or regions in which GATX has a concentrated exposure, could have a negative impact on GATX’s results of operations.

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

GATX generates a significant amount of its net income outside the United States and in recent years has increased its focus on international rail growth and expansion into select emerging markets as a means to grow and diversify earnings. GATX's foreign operations and international expansion strategy are subject to risks associated with international operations, including: compliance with United States laws affecting operations outside of the United States, such as the Foreign Corrupt Practices Act; compliance with a variety of local laws and regulations; 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 GATX assets in certain jurisdictions; greater risk of uncollectible accounts and longer collection cycles; effective and immediate implementation of appropriate controls, policies and processes across GATX's diverse operations and employee base; nationalization of properties by foreign governments, and imposition of additional or new tariffs, quotas, trade barriers and similar restrictions on GATX's sales outside the United States. Moreover, political and economic changes or volatility, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, public corruption and other economic or political uncertainties could

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interrupt and negatively affect GATX's business operations. Depending upon the severity, scope and duration of these conditions or events, the adverse impact on GATX's financial position, results of operations and cash flows could be material.

GATX’s allowance for losses may prove inadequate.

GATX’s allowance for losses on reservable assets may not be adequate over time to cover credit losses in its portfolio if unexpected adverse changes in the economy differ from the expectations of management or if discrete events adversely affect specific customers, industries or markets. If the credit quality of GATX’s customer base materially deteriorates, the Company may be required to provide for additional credit losses and GATX’s financial position or results of operations could be negatively impacted.

GATX may incur future asset impairment charges.

GATX regularly reviews long-lived assets and joint venture investments for impairment, including when events or changes in circumstances indicate the carrying value of an asset or investment may not be recoverable. GATX may be required to recognize asset impairment charges in the future as a result of a weak economic environment, challenging market conditions, events related to particular customers or asset types, or as a result of asset or portfolio sale decisions by management or other factors that affect GATX’s estimates of expected cash flows to be generated from its long-lived assets or joint venture investments.

GATX is subject to extensive environmental regulations and the costs of remediation may be material.

GATX’s operations 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 GATX’s properties, including those previously owned or leased, have been used for industrial purposes whose activities may have resulted in discharges onto the property. Environmental liability can extend to previously owned or operated properties as well as properties currently owned and used by the Company. Environmental liabilities are routinely assessed, including obligations and commitments for remediation of contaminated sites and assessments of ranges and probabilities of recoveries from other responsible parties. Due to the regulatory complexities and risk of unidentified contaminants on its properties, the potential exists for environmental and remediation costs to be materially different from the costs GATX has estimated.

GATX has been, and may in the future be, involved in various types of litigation.

The nature of GATX’s businesses and assets expose the Company to the potential for claims and litigation related to personal injury and property damage, environmental claims and various other matters. Certain GATX railcars may be used by customers to transport hazardous materials, and a rupture of a railcar carrying such materials in an accident could lead to litigation and subject GATX to the potential for significant liability. GATX's failure to maintain railcars in compliance with governmental regulations and industry rules could expose the Company to personal injury, property damage and environmental claims. A substantial adverse judgment against GATX could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

High energy prices could have a negative effect on the demand for GATX’s products and services.

Energy prices, including the price of natural gas and oil, are significant cost drivers for many of GATX’s 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 corresponding adverse effect on customer demand for GATX’s assets, as well as related services.

GATX may not be able to procure insurance on a cost-effective basis.

GATX manages its exposure to risk, in part, by insuring its assets and their associated risks. There is no guarantee that such insurance will be consistently available on a cost-effective basis in the future. If the cost of insurance coverage becomes prohibitively expensive, GATX could be forced to reduce the amount of coverage and increase the amount of its self-insured risk retention.


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The fair market value of GATX’s long-lived assets may differ from the value of those assets reflected in its financial statements.

GATX’s assets primarily consist of long-lived assets such as railcars, marine vessels and industrial equipment. The carrying value of these assets in the financial statements may at times differ from their fair market value. These valuation differences may be positive or negative and may be material based on market conditions and demand for certain assets.

Fluctuations in foreign exchange rates and interest rates could have a negative impact on GATX’s results of operations.

GATX’s results are exposed to foreign exchange rate fluctuations as the financial results of certain subsidiaries are translated from their local currency into U.S. dollars upon consolidation. As exchange rates vary, the operating results of foreign subsidiaries, when translated, may differ materially from period to period. GATX is also subject to 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 have an effect on the demand and relative price for services provided by GATX domestically and internationally, and could have a negative impact on GATX’s results of operations. GATX is also subject to risks associated with fluctuations in interest rates. The Company may seek to limit foreign exchange rate and interest rate risk through the use of currency or interest rate derivatives, but these measures may not be effective. A material and unexpected change in interest rates or foreign exchange rates could negatively affect GATX’s financial performance.

GATX is subject to the inherent risks of its affiliate investments.

GATX has investments in affiliated companies that are subject to many of the same risks discussed in this “Risk Factors” section, and GATX is indirectly exposed to these risks through its ownership interests in these affiliates. Many of these affiliates are managed and operated by third parties who may be smaller than GATX and have lesser financial resources. Adverse developments in the business or financial results of these affiliates, or the third parties who manage, operate, or invest along with GATX in these affiliates, could have a negative impact on GATX’s financial results. Additionally, where an affiliate is managed and operated by GATX’s partner in the affiliate or another third party, GATX may not have control over operational matters, which could result in actions taken at the affiliate level that may have an adverse economic impact on GATX or otherwise expose GATX to potential liability.

GATX has significant financial exposure related to the performance of its aircraft engine leasing affiliate investments.

GATX and 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 other owners and operators of commercial aircraft. Through these investments, GATX is exposed to various risks associated with the commercial aviation industry, including geographic exposure and customer concentrations unique to that industry. Further, the financial results of the RRPF Affiliates are heavily dependent on the performance of Rolls-Royce, which is both a major customer of, and a critical supplier of maintenance services to, the RRPF Affiliates. The RRPF Affiliates are significant contributors to GATX’s consolidated segment profit. If the financial or operating performance of the RRPF Affiliates were to deteriorate, GATX’s results of operations and cash flows could be negatively affected. 

GATX 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 have a negative impact on the Company’s customers and business. For example, restrictions on emissions could significantly increase costs for GATX customers who produce energy or manufacture chemical or other products that require significant amounts of energy to produce. This, in turn, could reduce customer demand to lease the Company’s assets. New government regulations could also increase marine and other operating costs for GATX or its joint venture entities, or could require significant capital expenditures to comply. All or any of these potential consequences of climate change could have an adverse effect on the Company’s financial position, results of operations and cash flows.

A small number of shareholders could significantly influence GATX’s business and affairs.

Based on filings with the U.S. Securities and Exchange Commission and other information available to the Company, seven shareholders collectively controlled approximately 50% of GATX’s 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.


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

Effects of inflation are unpredictable as to timing and duration 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 GATX’s financial results. However, these benefits may be offset, in whole or in part, by increases in the costs for goods and services purchased by GATX, including salaries and wages, health care costs, supplies, utilities, and maintenance and repair services and materials, as well as increased financing costs. Significant increases in GATX’s cost of goods and services could adversely impact the Company’s financial performance. A period of prolonged deflation would have a negative impact on GATX from several perspectives, including lease rate pricing, residual values and asset remarketing opportunities. These negative impacts of deflation may be offset, in whole or in part, by decreases in the cost to GATX of goods and services, including those discussed herein.

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

The success of GATX’s ASC subsidiary is dependent upon its ability to operate efficiently on the Great Lakes. Disruptions at the Sault St. Marie locks or severe weather conditions, including, but not limited to, high wind and ice formation, could cause significant business interruptions or shortened sailing seasons. Additionally, low water levels and vessel draft restrictions in certain harbors or canals may restrict the volume that may be transported in ASC’s vessels on a per trip basis. These conditions could negatively impact GATX’s results of operations through increased operating costs or decreased revenues.

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

A significant portion of GATX’s employees are represented by labor unions and work under collective bargaining agreements that cover a range of workplace matters, including wages, health and welfare benefits, work rules and other issues. Historically, the Company and its unions have been generally successful in negotiating acceptable agreements without the occurrence of material work stoppages. However, if the Company is unable to negotiate acceptable new agreements, it could result in strikes by the affected workers, lockouts by the Company, or other forms of business disruption and increased operating costs due to higher wages or benefits paid to union workers, any of which could have an adverse effect on the Company’s financial position, results of operations or cash flows.

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

GATX’s pension and other post-retirement costs are dependent on various assumptions used to calculate such amounts, including 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 GATX’s financial position and results of operations. Periods of low interest rates reduce the discount rate used to calculate GATX's funding obligations, which may increase GATX's funding requirements. Additionally, GATX could be required to increase contributions to its pension plans as a result of changes to laws, regulations or rules that increase funding requirements or to compensate for investment losses in pension plan assets. If GATX were forced to increase contributions to its pension plans, the Company’s financial position, results of operations and cash flows could be negatively affected.

GATX’s effective tax rate could be adversely affected by changes in the mix of earnings in the U.S. and foreign countries.

GATX is subject to taxes in the United States and various foreign jurisdictions. As a result, GATX’s 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, legislative changes impacting statutory tax rates, including the impact on recorded deferred tax assets and liabilities, changes in tax laws or by material audit assessments.

United States and global economic and political conditions, including acts or threats of terrorism or war, could adversely affect GATX.

National and international political developments, instability and uncertainties, including political unrest and threats of terrorist attacks, could result in global economic weakness in the United States and in other countries where GATX operates, and could have an adverse impact on GATX. The effects may include: legislation or regulatory action directed toward improving the security of railcars and marine

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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 new and existing rail and marine equipment; lower rail lease and marine charter rates; impairments of rail and marine assets or capital market disruption, which may raise GATX’s financing costs or limit its access to capital; and liability or losses resulting from acts of terrorism involving GATX’s assets. Depending upon the severity, scope and duration of these effects, the impact on GATX’s financial position, results of operations and cash flows could be material.

GATX’s business could be negatively impacted by security threats, including cybersecurity threats, and related disruptions.

GATX relies on its information technology (“IT”) infrastructure to process, transmit and store electronic information critical for the efficient operation of its business and day-to-day operations. All IT systems are potentially vulnerable to security threats, including hacking, viruses and other malicious software, and other unlawful attempts to disrupt or gain access to such systems. Breaches in GATX’s IT infrastructure could lead to a material disruption in its business, including the theft, destruction, loss, misappropriation or release of confidential data or other business information, and may have a material adverse effect on GATX’s operations, financial position and results of operations.

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

If GATX fails to maintain adequate internal controls over financial accounting, the Company may not be able to ensure that GATX can conclude on an ongoing basis that it has effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act and related regulations. Although GATX’s management has concluded that adequate internal control procedures are in place, no system of internal control can provide absolute assurance that the financial statements are accurate and free of error. As a result, the risk exists that GATX’s internal control may not detect all errors or omissions in the financial statements.

Item 1B.  Unresolved Staff Comments

None.


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Item 2.  Properties

Information regarding the location and general character of certain properties of GATX is included in Item 1, “Business”, of this document.

Locations of operations are as follows:

GATX Headquarters
 
 
 
Chicago, Illinois
 
 
 
 
 
 
 
Railcar Leasing Operations
Business Offices
Major Service Centers
Fast Track Service Centers
American Steamship Company
San Francisco, California
Colton, California
East Chicago, Indiana
Williamsville, New York
Alpharetta, Georgia
Waycross, Georgia
Terre Haute, Indiana
Toledo, Ohio
Chicago, Illinois
Hearne, Texas
Kansas City, Kansas
 
Paducah, Kentucky
Red Deer, Alberta
 
Portfolio Management
Savage, Minnesota
Montreal, Quebec
Mobile Service Units
San Francisco, California
Bozeman, Montana
Moose Jaw, Saskatchewan
Mobile, Alabama
 
Morrill, Nebraska
Hannover, Germany
Tampa, Florida
 
Hackensack, New Jersey
Ostróda, Poland
Gray, Georgia
 
Holicong, Pennsylvania
 
Hammond, Indiana
 
Doylestown, Pennsylvania
Field Repair Centers
Sioux City, Iowa
 
Monroeville, Pennsylvania
Plantersville, Texas
Donaldsonville, Louisiana
 
Houston, Texas
Sarnia, Ontario
Camp Minden, Louisiana
 
Calgary, Alberta
 
Lake Charles, Louisiana
 
Mississauga, Ontario
Customer Site Locations
Morris, Kansas
 
Montreal, Quebec
Donaldsonville, Louisiana
Columbia, New Jersey
 
Mexico City, Mexico
Geismar, Louisiana
Copperhill, Tennessee
 
Vienna, Austria
Cincinnati, Ohio
Galena Park, Texas
 
Düsseldorf, Germany
Catoosa, Oklahoma
Olympia, Washington
 
Leipzig, Germany
Freeport, Texas
Edmonton, Alberta
 
Hamburg, Germany
Yazoo City, Mississippi
Red Deer, Alberta
 
Warsaw, Poland
Płock, Poland
Clarkson, Ontario
 
New Delhi, India
 
Sarnia, Ontario
 
Moscow, Russia
 
Moose Jaw, Saskatchewan
 
 
 
Montreal, Quebec
 
 
 
Quebec City, Quebec
 

Item 3.  Legal Proceedings

Information concerning litigation and other contingencies is described under “Legal Proceedings and Other Contingencies” in Note 22 to the consolidated financial statements and is incorporated herein by reference.

Item 4.  Mine Safety Disclosure

Not applicable.


19


PART II

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

GATX common stock is listed on the New York and Chicago Stock Exchanges under ticker symbol GMT. The approximate number of common shareholders of record as of January 31, 2013, was 2,300. The following table shows the reported high and low sales price of GATX common shares and the dividends declared per share:

 
 
 
 
 
 
 
 
 
2012
 
2011
 
2012
 
2012
 
2011
 
2011
 
Dividends
 
Dividends
Common Stock
High
 
Low
 
High
 
Low
 
Declared
 
Declared
First quarter
$
45.50

 
$
39.86

 
$
38.94

 
$
31.95

 
$
0.30

 
$
0.29

Second quarter
43.84

 
35.52

 
42.84

 
35.16

 
0.30

 
0.29

Third quarter
45.28

 
36.68

 
40.30

 
29.43

 
0.30

 
0.29

Fourth quarter
45.99

 
39.83

 
44.98

 
28.90

 
0.30

 
0.29


For information pertaining to issuable securities under equity compensation plans and the related weighted average exercise price, see Note 11 to the consolidated financial statements and Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” For information regarding restricted net assets, see Note 8 to the consolidated financial statements.


20


GATX Common Stock Performance Graph

The following GATX Common Stock Performance Graph (the “Performance Graph”) and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

The following Performance Graph sets forth a comparison of the cumulative total shareholder return of the Company’s common stock for the five-year period ending December 31, 2012, with the cumulative total return of the Standard & Poor’s 500 Composite Stock Price Index (“S&P 500”), the Standard & Poor’s MidCap 400 Index (“MidCap 400”) and Russell 3000 Index for the same period. The Company is not aware of any peer companies whose businesses are directly comparable to that of GATX and, therefore, the graph below displays the returns of the MidCap 400 and Russell 3000, both of which are comprised of companies with market capitalizations similar to GATX. The Performance Graph assumes $100 was invested in GATX common stock and each of the indices on December 31, 2007, and all dividends were reinvested.





12/31/08
 
12/31/09
 
12/31/10
 
12/31/11
 
12/31/12
GATX
$
87.38

 
$
84.27

 
$
106.70

 
$
135.55

 
$
138.16

S&P 500
63.45

 
79.90

 
91.74

 
93.67

 
108.55

MidCap 400
64.09

 
87.73

 
110.88

 
109.00

 
128.38

Russell 3000
63.12

 
80.69

 
94.15

 
95.12

 
110.62



21


Item 6.  Selected Financial Data

The following financial information has been derived from GATX’s audited consolidated financial statements. 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 notes thereto included elsewhere herein.

 
Year Ended or at December 31
 
2012
 
2011
 
2010
 
2009
 
2008
 
In millions, except per share data
Results of Operations
 
 
 
 
 
 
 
 
 
Revenue
$
1,243.2

 
$
1,191.4

 
$
1,114.0

 
$
1,083.8

 
$
1,270.9

Gain on asset dispositions
79.5

 
65.8

 
41.1

 
29.5

 
81.5

Share of affiliates’ earnings (pre-tax)
21.6

 
40.6

 
38.1

 
29.0

 
90.6

Net income
137.3

 
110.8

 
80.8

 
81.4

 
194.8

Net income, excluding Tax Adjustments and Other Items *
133.8

 
95.0

 
74.6

 
94.7

 
174.9

Per Share Data
 
 
 
 
 
 
 
 
 
Basic earnings
2.93

 
2.39

 
1.75

 
1.74

 
4.09

Diluted earnings
2.88

 
2.35

 
1.72

 
1.70

 
3.88

Diluted earnings, excluding Tax Adjustments and Other Items *
2.81

 
2.01

 
1.59

 
1.97

 
3.49

Dividends declared
1.20

 
1.16

 
1.12

 
1.12

 
1.08

Financial Condition
 
 
 
 
 
 
 
 
 
Operating assets and facilities, net of accumulated depreciation
$
4,654.4

 
$
4,359.3

 
$
4,133.8

 
$
4,033.3

 
$
3,921.6

Investments in affiliated companies
502.0

 
513.8

 
486.1

 
452.2

 
399.3

Total assets
6,055.4

 
5,857.5

 
5,490.5

 
5,206.4

 
5,190.5

Off balance sheet assets  *
884.5

 
887.1

 
971.5

 
1,016.1

 
1,061.2

Short-term borrowings
273.6

 
28.6

 
115.6

 
70.8

 
125.1

Long-term debt and capital lease obligations
3,294.3

 
3,518.5

 
3,060.9

 
2,842.0

 
2,684.2

Shareholders’ equity
1,244.2

 
1,127.3

 
1,113.7

 
1,102.6

 
1,124.5

Other Data
 
 
 
 
 
 
 
 
 
Average number of common shares and common share equivalents
47.6

 
47.2

 
47.0

 
48.8

 
51.0

Net cash provided by operating activities
$
370.2

 
$
306.8

 
$
243.7

 
$
267.0

 
$
364.0

Portfolio proceeds
$
288.9

 
$
154.1

 
$
84.3

 
$
67.9

 
$
156.1

Portfolio investments and capital additions
$
770.0

 
$
614.6

 
$
585.1

 
$
480.4

 
$
593.1

Recourse leverage
3.2

 
3.4

 
3.3

 
3.1

 
2.9

ROE
11.6
%
 
9.9
%
 
7.3
%
 
7.3
%
 
17.1
%
ROE, excluding Tax Adjustments and Other Items  *
11.3
%
 
8.5
%
 
6.7
%
 
8.5
%
 
15.4
%
__________
(*) See Non-GAAP Financial Measures included in Item 7.


22


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

OVERVIEW

Headquartered in Chicago, Illinois, GATX Corporation (“GATX” or the “Company”) leases, operates, manages and remarkets long-lived, widely-used assets, primarily in the rail and marine markets. GATX also invests in joint ventures that complement existing business activities. In 2012, the Company modified the composition of its reportable segments to reflect an increasing focus on international growth and related changes in its management structure. As a result, the Company now reports financial results through four primary business segments: Rail North America, Rail International, American Steamship Company (“ASC”) and Portfolio Management. All segment information is presented on this basis. General information and characteristics of GATX, including reporting segments, is included in Item 1, “Business”, of this document.

The following discussion and analysis should be read in conjunction with the audited financial statements included herein. This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on financial data derived from the financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) and certain other financial data that is 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.


23


DISCUSSION OF OPERATING RESULTS

The following table presents a summary of GATX’s reporting segments and consolidated financial results (in millions, except per share data):
 
Years Ended December 31
 
2012
 
2011
 
2010
 
 
 
 
 
 
Revenues
 
 
 
 
 
Rail North America
$
765.3

 
$
742.4

 
$
720.0

Rail International
167.7

 
168.3

 
147.5

ASC
243.4

 
216.4

 
189.4

Portfolio Management
66.8

 
64.3

 
57.1

 
$
1,243.2

 
$
1,191.4

 
$
1,114.0

Segment Profit
 
 
 
 
 
Rail North America
$
209.3

 
$
172.7

 
$
120.1

Rail International
32.7

 
60.7

 
30.5

ASC
37.5

 
27.3

 
28.6

Portfolio Management
50.2

 
47.6

 
48.7

Total Segment Profit
329.7

 
308.3

 
227.9

Less:
 
 
 
 
 
Selling, general and administrative expense
160.2

 
155.3

 
134.8

Unallocated interest expense, net
5.4

 
4.5

 
3.5

Other, including eliminations
(1.3
)
 
0.3

 
(7.8
)
Income Taxes (including $2.0, $8.2 and $9.6 for 2012, 2011 and 2010, respectively, related to affiliates' earnings)
28.1

 
37.4

 
16.6

   Net Income   
$
137.3

 
$
110.8

 
$
80.8

 
 
 
 
 
 
Net income, excluding Tax Adjustments and Other Items
$
133.8

 
$
95.0

 
$
74.6

Diluted earnings per share
2.88

 
2.35

 
1.72

Diluted earnings per share, excluding Tax Adjustments and Other Items
2.81

 
2.01

 
1.59

 
 
 
 
 
 
Return on equity (“ROE”)
11.6
%
 
9.9
%
 
7.3
%
ROE, excluding Tax Adjustments and Other Items
11.3
%
 
8.5
%
 
6.7
%
 
 
 
 
 
 
Investment Volume
$
770.0

 
$
614.6

 
$
585.1


2012 Summary

Net income for 2012 was $137.3 million, or $2.88 per diluted share, compared to $110.8 million, or $2.35 per diluted share, for 2011 and $80.8 million, or $1.72 per diluted share, for 2010. Results for 2012, 2011 and 2010 included Tax Adjustments and Other Items of $3.5 million, $15.8 million and $6.2 million, respectively (see Non-GAAP Financial Measures for further details). Excluding the impact of these items, net income in 2012 was $133.8 million, an increase of 40.8%, or $38.8 million, from 2011; and net income in 2011 was $95.0 million, an increase of 27.3% or 20.4 million, from 2010. The increase in 2012 was primarily driven by higher Rail North America lease rates, increased asset remarketing income and lower Rail North America maintenance costs due to fewer service events resulting from high lease renewal success. The increase in 2011 was primarily driven by higher Rail North America lease income, higher asset remarketing income and higher scrapping gains, partially offset by higher selling, general and administrative expense.
Total investment volume was $770.0 million in 2012, compared to $614.6 million in 2011 and $585.1 million in 2010.

24


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, pre-tax 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.

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


RAIL NORTH AMERICA

Segment Summary

Rail North America continued to experience improved demand for tank cars, which led to improved lease rate pricing and lengthening of lease terms. The weighted average lease renewal rate on cars in the GATX Lease Price Index (the “LPI”, see definition below) increased 25.6% from the weighted average expiring lease rate, compared to an increase of 6.9% in 2011 and a decrease of 15.8% in 2010. Lease terms on renewals for cars in the LPI averaged 60 months in 2012, compared to 45 months in 2011 and 35 months in 2010. During 2012, an average of 107,255 railcars were on lease compared to 107,320 in 2011. Utilization was 97.9% at the end of 2012, compared to 98.2% at the end of 2011. In 2013, leases for approximately 20,500 railcars will expire, of which approximately 3,500 have already been renewed. In general, GATX expects strong renewal success at higher lease rates, particularly for tank cars. However, cars that serve the coal and grain markets, of which approximately 3,800 have leases expiring in 2013, are presently experiencing weak demand and these cars will be difficult to re-lease at existing terms and rates. Rail North America also anticipates a material increase in maintenance expense in 2013 and 2014 due to the number of tank cars that are scheduled to undergo required regulatory maintenance.

GATX continues to pursue prudent investment opportunities in North America. In 2011, GATX entered into a purchase agreement for 12,500 railcars to be delivered in North America ratably over five years, the largest such commitment in GATX’s history. In 2013, Rail North America expects to take delivery of approximately 2,750 new railcars. In addition, Rail North America expects to add other selected assets to its fleet, although rising asset prices may impact the level of investment spending.


25



Rail North America’s segment results are summarized below (in millions):


Years Ended December 31

2012

2011

2010
Revenues








Lease revenue
$
713.9


$
690.9


$
671.5

Other revenue
51.4


51.5


48.5

   Total Revenues
765.3


742.4


720.0

 
 
 
 
 
 
Expenses








Maintenance expense
201.4

 
206.1

 
205.5

Depreciation
167.7


162.5


158.6

Operating lease expense
126.5


130.9


139.1

Other operating expense
18.5


18.8


24.2

   Total Expenses
514.1


518.3


527.4

 
 
 
 
 
 
Other Income (Expense)








Net gain on asset dispositions
58.6

 
52.1

 
29.6

Interest expense, net
(101.9
)

(101.7
)

(103.8
)
Other (expense) income
(5.1
)
 
(5.7
)
 
(5.5
)
Share of affiliates' earnings (pre-tax)
6.5


3.9


7.2

Segment Profit   
$
209.3


$
172.7


$
120.1

 
 
 
 
 
 
Investment Volume
$
465.9


$
280.5


$
367.1


Components of Rail North America lease income for the years ended December 31 are outlined below (in millions):
 
2012
 
2011
 
2010
North American railcars
$
680.0

 
$
654.9

 
$
637.2

Locomotives
33.9

 
36.0

 
34.3

 
$
713.9

 
$
690.9

 
$
671.5



26


Lease Price Index

The GATX Lease Price Index is an internally generated business indicator that measures general lease rate pricing on renewals within the Rail’s North America fleet. The index reflects the weighted average lease rate for a select group of railcar types that Rail North America believes to be representative of its overall fleet. The LPI measures the percentage change between the weighted average renewal lease rate and the weighted average expiring lease rate. Average renewal term reflects the weighted average renewal lease term in months.


27


Rail North America Fleet Data

The following table summarizes fleet activity for Rail North America railcars for the years indicated:
 
2012
 
2011
 
2010
Beginning balance
109,070

 
111,389

 
110,870

Cars added
4,572

 
2,873

 
5,448

Cars scrapped
(2,045
)
 
(3,363
)
 
(3,539
)
Cars sold
(2,046
)
 
(1,829
)
 
(1,390
)
Ending balance
109,551

 
109,070

 
111,389

Utilization rate at year end
97.9
%
 
98.2
%
 
97.4
%
Active railcars at year end
107,216

 
107,075

 
108,447

Average (monthly) active railcars
107,255

 
107,320

 
105,483


The following table summarizes fleet activity for Rail North America locomotives for the years indicated:
 
2012
 
2011
 
2010
Beginning balance
572

 
550

 
529

Locomotives added
50

 
28

 
21

Locomotives scrapped or sold
(61
)
 
(6
)
 

Ending balance
561

 
572

 
550

Utilization rate at year end
98.6
%
 
98.1
%
 
97.6
%
Active locomotives at year end
553

 
561

 
537

Average (monthly) active locomotives
549

 
553

 
516



28


Comparison of Year Ended December 31, 2012 to Year Ended December 31, 2011

Segment Profit

Rail North America's segment profit was $209.3 million in 2012 compared to $172.7 million in 2011. The 2011 results included $5.5 million of income related to a leveraged lease adjustment attributable to changes in the timing of the taxable income associated with a leveraged lease structure upon settlement of an IRS audit. Excluding the effect of this item, segment profit increased $42.1 million, primarily due to higher lease income and gains on asset dispositions combined with lower maintenance expense.

Revenues

Lease income increased $23.0 million, primarily due to higher lease rates in the current year, as the average number of cars on lease approximated the prior year. Partially offsetting the increase was the absence of the aforementioned leveraged lease adjustment.

Expenses

Maintenance expense decreased $4.7 million, primarily due to fewer service events resulting from high lease renewal success. Depreciation increased $5.2 million, primarily due to investment activity. Operating lease expense decreased $4.4 million, primarily due to the expiration of leases in the prior year for which the underlying railcars were re-acquired.

Other Income (Expense)

Net gain on asset dispositions increased $6.5 million, primarily due to an $11.1 million fee received on the early termination of a residual value guarantee, partially offset by lower scrapping gains due to fewer railcars scrapped at lower scrap rates. Share of Affiliates’ earnings increased $2.6 million, primarily due to asset remarketing gains at the Adler affiliate in 2012.

Investment Volume

During 2012, Rail North America acquired approximately 4,660 railcars compared to 2,650 railcars in 2011.

Comparison of Year Ended December 31, 2011 to Year Ended December 31, 2010

Segment Profit

Rail North America's segment profit was $172.7 million in 2011 compared to $120.1 million in 2010. The 2011 results included $5.5 million of income related to the leveraged lease adjustment. Excluding the effect of this item, segment profit increased $47.1 million, primarily due to higher lease income and gains on asset dispositions combined with lower expenses.

Revenues

Lease income increased $19.4 million in 2011, of which $5.5 million related to the aforementioned leveraged lease adjustment. The remaining variance was primarily due to an average of approximately 1,800 more railcars on lease in 2011. Other income increased $3.0 million, primarily due to higher revenue from third party and customer liability repairs, partially offset by the absence of income from an end-of-lease settlement received in 2010.

Expenses

Maintenance expense in 2011 approximated the prior year as higher costs from railcar conversion programs and locomotive maintenance were substantially offset by lower costs at the Company’s owned service facilities. Depreciation increased $3.9 million in 2011, primarily due to investment activity. Operating lease expense decreased $8.2 million, primarily due to leases that expired in 2011 for which the underlying railcars were re-acquired. Other operating expense decreased $5.4 million, primarily due to lower storage and switching fees resulting from the increase in cars on lease.


29


Other Income (Expense)

Net gain on asset dispositions increased $22.5 million, primarily due to sales of approximately 450 more railcars in 2011, higher scrapping gains as a result of more railcars scrapped at higher scrap steel rates, and lower asset impairment charges. In 2010, a $4.8 million charge was recorded due to an Association of American Railroads industry-wide regulatory mandate that resulted in a significant decrease to the expected economic life of 358 aluminum hopper railcars. Interest expense decreased $2.1 million, primarily due to lower interest rates, partially offset by higher debt balances. Share of affiliates’ earnings decreased $3.3 million, primarily due to an asset remarketing gain at an affiliate that occurred in 2010.
  
Investment Volume

During 2011, Rail North America acquired approximately 2,650 railcars compared to 5,300 railcars in 2010.

RAIL INTERNATIONAL

Segment Summary
 
Rail Europe's wholly-owned tank car fleet exhibited increases in both lease pricing and railcars on lease in 2012, reflective of strong market demand. During 2012, there was an average of 20,461 railcars on lease compared to 19,834 in 2011. Utilization was 95.1% at the end of 2012, compared to 97.1% at the end of 2011. AAE, which serves the European freight railcar markets, experienced modest improvement in its markets and its fleet utilization was stable. Rail Europe has commitments to acquire 1,500 newly manufactured railcars to be delivered in 2013 and 2014 (including cars assembled by Rail Europe).

Rail India commenced operations in 2012, taking delivery of 46 newly manufactured railcars in December, which have been placed on lease with a customer commencing in 2013.

Rail International’s segment results are summarized below (in millions):

 
Years Ended December 31
 
2012
 
2011
 
2010
Revenues
 
 
 
 
 
Lease revenue
$
161.2

 
$
160.5

 
$
141.8

Other revenue
6.5

 
7.8

 
5.7

   Total Revenues
167.7

 
168.3

 
147.5

 
 
 
 
 
 
Expenses
 
 
 
 
 
Maintenance expense
46.6

 
52.1

 
49.8

Depreciation
36.1

 
33.6

 
30.2

Other operating expense
5.1

 
4.2

 
5.1

   Total Expenses
87.8

 
89.9

 
85.1

 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
Net gain (loss) on asset dispositions
1.7

 

 
(0.6
)
Interest expense, net
(24.5
)
 
(25.4
)
 
(23.3
)
Other (expense) income
(6.1
)
 
7.2

 
(2.0
)
Share of affiliates' earnings (pre-tax)
(18.3
)
 
0.5

 
(6.0
)
Segment Profit   
$
32.7

 
$
60.7

 
$
30.5

 
 
 
 
 
 
Investment Volume
$
200.1

 
$
140.8

 
$
107.5

 
 
 
 
 
 


30


The following table summarizes fleet activity for Rail International railcars for the years indicated:
 
2012
 
2011
 
2010
Beginning balance
20,927

 
20,432

 
20,033

Cars added
1,582

 
841

 
662

Cars scrapped or sold
(669
)
 
(346
)
 
(263
)
Ending balance
21,840

 
20,927

 
20,432

Utilization rate at year end
95.1
%
 
97.1
%
 
95.7
%
Active railcars at year end
20,763

 
20,321

 
19,554

Average (monthly) active railcars
20,465

 
19,834

 
19,249





Comparison of Year Ended December 31, 2012 to Year Ended December 31, 2011

Segment Profit

Rail International's segment profit was $32.7 million in 2012 compared to $60.7 million in 2011. The 2012 results included losses of $22.9 million related to certain interest rate swaps at AAE compared to gains of $0.3 million in 2011. Segment profit in 2011 also included $3.2 million from the favorable resolution of a litigation matter. Excluding the effect of these items from each period, Rail International's segment profit decreased $1.6 million, primarily due to the unfavorable foreign exchange impact of a stronger U.S. dollar during 2012 and the unfavorable remeasurement of an embedded foreign currency derivative, partially offset by lower maintenance expense and higher operating income at AAE.

AAE holds multiple interest rate swaps intended to hedge interest rate risk associated with existing and forecasted floating rate debt issuances. Some of these swaps do not qualify for hedge accounting and as a result, changes in their fair values are recognized currently in income. Unrealized gains and losses resulting from these changes are primarily driven by changes in the underlying benchmark interest rates. AAE’s earnings may be impacted by future gains or losses associated with these swaps. Unrealized losses in 2012 were $9.4 million and unrealized gains in 2011 were $0.3 million. Additionally, in 2012, AAE refinanced a portion of its debt and terminated an associated swap at a loss. GATX’s portion of the loss was $13.5 million, which was included in share of affiliates’ earnings.


31


Revenues

Lease income increased $0.7 million, primarily due to an average of approximately 630 more railcars on lease at higher lease rates, substantially offset by the foreign exchange rate effects of a stronger U.S. dollar. Other income decreased $1.3 million, primarily due to lower revenue from customer liability repairs.

Expenses

Maintenance expense decreased $5.5 million, primarily due to the foreign exchange effects of a stronger U.S. dollar. Depreciation increased $2.5 million, primarily due to investment activity, including capitalized wheelsets in Europe, partially offset by the foreign exchange effects of a stronger U.S. dollar.

Other Income (Expense)

Net gain on asset dispositions increased $1.7 million, primarily due to higher scrapping gains as a result of more railcars and wheelsets being scrapped. Interest expense decreased $0.9 million, as interest income on cash deposits more than offset the effect of higher expenses from increased debt levels. Other expense increased $13.3 million of which $3.2 million was due to the favorable resolution of a litigation matter in Europe in 2011. The remaining variance was primarily due to the unfavorable remeasurement of an embedded foreign currency derivative (related to certain non-functional currency lease contracts) and higher legal defense costs. Excluding the impact of the interest rate swaps at AAE from each period, affiliates’ earnings increased $4.4 million, primarily due to higher operating income at AAE, which included lower depreciation expense of $6.2 million due to a change in railcar depreciation policy enacted in 2012 that extended depreciable lives and increased estimated salvage values.
 
Investment Volume

During 2012, Rail International acquired 1,580 railcars compared to 840 railcars in 2011.

Comparison of Year Ended December 31, 2011 to Year Ended December 31, 2010

Segment Profit

Rail International's segment profit was $60.7 million in 2011, an increase of $30.2 million from 2010. The 2011 results include unrealized gains of $0.3 million representing the change in the fair value of the AAE interest rate swaps and $3.2 million from the favorable resolution of a litigation matter. The 2010 results included unrealized losses of $10.4 million related to the AAE interest rate swaps. Excluding these items from each period, segment profit increased $16.3 million, primarily due to higher lease income, the favorable foreign exchange impact of a weaker average U.S. dollar in 2011 and the favorable remeasurement of an embedded foreign currency derivative.

Revenues

Lease income increased $18.7 million, primarily due to an average of approximately 585 more railcars on lease, higher lease rates, and the foreign exchange rate effects of a weaker U.S. dollar. Other income increased $2.1 million, primarily due to higher revenue from compensation for damaged railcars.

Expenses

Maintenance expense increased $2.3 million, primarily due to higher volumes of underframe and tank revisions, partially offset by lower current repairs and a fewer number of wheelsets expensed. Depreciation increased $3.4 million, primarily due to investment activity, including capitalized wheelsets. Other operating expense decreased $0.9 million, primarily due to lower storage and miscellaneous operating costs.


32


Other Income (Expense)

Net gain on asset dispositions increased $0.6 million, primarily due to gain on sale of locomotives in 2011. Interest expense increased $2.1 million, primarily due to higher debt balances resulting from investment activity. Other expense decreased $9.2 million, primarily due to the favorable settlement of a litigation matter in 2011, the favorable fair value adjustment of an embedded foreign currency derivative in 2011, and net remeasurement gains on non-functional currency assets and liabilities in 2011 compared to net losses in 2010. Excluding the impact of the interest rate swaps at AAE from each period, affiliates’ earnings decreased $4.2 million, primarily due to a 2011 charge related to a bankrupt customer and the absence of a favorable maintenance reserve adjustment in 2010, both at AAE.

Investment Volume

During 2011, Rail International acquired 840 railcars compared to 650 railcars in 2010.

International Railcar Regulatory Matters
    
Consistent with changes in European railcar industry practices and regulatory directives announced after the 2009 accident in the city of Viareggio, Italy, GATX Rail Austria GmbH (an indirect subsidiary of the Company, “GATX Rail Austria”) and its subsidiaries have implemented a modified wheelset maintenance and inspection program, which includes the installation of new wheelsets in certain cases. Future industry actions and regulatory directives may require further modifications of the maintenance and inspection practices of GATX Rail Austria and its subsidiaries. GATX Rail Austria and its subsidiaries will continue to incur higher maintenance expenses and capital costs over the next several years as implementation of the wheelset program continues. It is expected that the wheelset maintenance and inspection program will lead to higher future depreciation expense, but lower maintenance costs. The complete scope and cost of any potential future maintenance initiatives, in addition to those implemented as part of the modified wheelset maintenance and inspection program, are not fully known at this time. The Company does not currently expect that the costs associated with the modified wheelset maintenance and inspection program and other potential initiatives will be material to the Company's financial position, liquidity or results of operations.








ASC

Segment Summary

Demand for ASC’s services remained strong throughout 2012, driven by the continued recovery in steel manufacturing and the associated demand for iron ore. In mid-2011, a work stoppage resulting from a strike by the licensed crew members represented by the American Maritime Officers (AMO) union resulted in lost tonnage and incremental expenses for vessel lay-up and non-productive labor costs. In late 2011, ASC executed a new five-year collective bargaining agreement with the AMO that was ratified by the workers in early 2012. ASC carried a total of 29.7 million net tons of freight and deployed 14 vessels in 2012 compared to 28.4 million net tons and 14 vessels in 2011. Shipping volumes are expected to decrease slightly in 2013. Additionally, record low water levels on the Great Lakes may negatively impact ASC's operations.


33


ASC’s segment results are summarized below (in millions):
 
Years Ended December 31
 
2012
 
2011
 
2010
Revenues
 
 
 
 
 
Lease revenue
$
4.3

 
$
4.2

 
$
4.1

Marine operating revenue
239.1

 
212.2

 
185.3

   Total Revenues
243.4

 
216.4

 
189.4

 
 
 
 
 
 
Expenses
 
 
 
 
 
Maintenance expense
21.7

 
19.4

 
12.9

Marine operating expense
160.3

 
151.7

 
129.1

Depreciation
11.9

 
11.3

 
10.7

Operating lease expense
3.8

 

 

Other operating expense
(0.3
)
 

 

   Total Expenses
197.4

 
182.4

 
152.7

 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
Net gain on asset dispositions

 
1.1

 

Interest expense, net
(7.1
)
 
(7.7
)
 
(8.3
)
Other (expense) income
(1.4
)
 
(0.1
)
 
0.2

Segment Profit   
$
37.5

 
$
27.3

 
$
28.6

 
 
 
 
 
 
Investment Volume
$
12.6

 
$
17.4

 
$
9.0



34


Comparison of Year Ended December 31, 2012, to Year Ended December 31, 2011

Segment Profit
 
ASC's segment profit for 2012 was $10.2 million higher primarily due to higher iron ore freight volumes and rates, and the absence of the negative impacts of the labor work stoppage in the prior year.

Revenues

Marine operating revenue increased $26.9 million primarily due to higher freight volumes, particularly iron ore, as well as higher freight rates and fuel surcharges. In accordance with certain contract provisions, ASC is able to recover a large portion of fuel cost increases from its customers.

Expenses

Maintenance expense increased $2.3 million, primarily due to higher repairs on several vessels. Marine operating expenses were $8.6 million higher than the prior year. Higher fuel and wage costs in 2012, primarily due to more vessels operating, were substantially offset by the absence of costs related to the labor work stoppage in the prior year. Operating lease expense in 2012 relates to the inception of the lease for ASC's new tug-barge vessel.

Other Income (Expense)

In 2011, a gain of $1.1 million was recognized upon the return of a vessel at the end of its lease term. Interest expense was lower due to lower rates and the absence of interest on the expired capital lease. Other expenses in the current year primarily consisted of reserves and settlements for ongoing asbestos-related litigation matters.

Investment Volume

ASC's investments for each year primarily consisted of structural and mechanical upgrades to its vessels.


35


Comparison of Year Ended December 31, 2011, to Year Ended December 31, 2010

Segment Profit

ASC’s segment profit for 2011 was $1.3 million lower than the prior year, primarily due to higher maintenance costs as well as incremental expenses related to the aforementioned work stoppage. ASC operated 14 vessels during 2011 compared to 13 vessels during 2010.

Revenues

Marine operating revenues increased $26.9 million in 2011 due to a combination of higher freight rates, a favorable mix of freight volume and higher fuel surcharges, which offset higher fuel costs. While total net tons carried in 2011 of 28.4 million represented a slight increase of 0.4 million, or 1.4%, from 2010, volume of iron ore, a higher margin commodity, increased 2.4 million net tons.

Expenses

Maintenance expense was $6.5 million higher than the prior year, primarily due to more extensive winter work and more vessels operating. Marine operating expenses increased $22.6 million, primarily due to increased fuel costs, which are recoverable through fuel surcharges, higher operating costs due to more vessels operating and expenses related to the aforementioned work stoppage.

Other Income (Expense)

In 2011, a gain of $1.1 million was recognized upon the return of a vessel at the end of its lease term. Interest expense was lower due to lower rates and lower capital lease interest.

ASC Regulatory Issues

On December 8, 2011, the United States Environmental Protection Agency (the “EPA”) published for comment a new draft Vessel General Permit (“VGP”) under the Clean Water Act (“CWA”) that would establish numeric effluent limits for the discharge of living organisms in ballast water for certain commercial vessels. The limits are based on the International Maritime Organization standard. This draft VGP will replace the current VGP issued in December 2008 that will expire on December 19, 2013. The completed draft VGP is under review by the Congressional Office of Management and Budget and the EPA has stated that it intends to publish the final VGP by March 15, 2013, with an effective date of December 19, 2013.

Once approved, the new VGP will not impose numeric treatment limits for ballast water discharges on existing Great Lakes bulk carrier vessels built before January 1, 2009, that operate exclusively in the Great Lakes upstream of the Welland Canal (the “Exempt Vessels”), essentially exempting all but one of ASC's vessels.  However, the new VGP imposes best management practices for the management of ballast water discharges for Exempt Vessels that are substantially similar to those in the current VGP. The new VGP will include revised state specific ballast water treatment standards as allowed by the Section 401 certification process of the CWA.

The EPA has proposed a staggered implementation schedule for non-Exempt Vessels to achieve the treatment limits of the new VGP. Non-Exempt Vessels must meet the standards at the time of their first drydocking after January 1, 2014, or January 1, 2016, (depending upon vessel size). New vessels constructed after January 1, 2012, that are subject to the treatment limits, must meet those limits upon entering waters of the United States following the effective date of the new VGP.


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 and to selectively invest in domestic marine and container related assets.


36


Portfolio Management's segment profit was 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 includes earnings from the RRPF Affiliates of $44.8 million, $38.6 million and $31.1 million for 2012, 2011 and 2010 respectively. While the RRPF Affiliates are expected to continue to produce strong operating results and gains from engine sales, marine operations will likely continue to be negatively impacted by inconsistent demand and vessel overcapacity in the international shipping markets, further pressuring charter rates. These conditions are expected to affect both wholly-owned and affiliate vessels.

In 2012, GATX's gas compression equipment leasing affiliate, Enerven Compression, LLC, sold substantially all of its assets and is in the process of liquidation. In connection with this disposition, GATX recognized an impairment loss of $14.8 million, which is reflected in share of affiliates' earnings. In 2011, GATX's Clipper Fourth affiliates were dissolved. In connection with the dissolutions, GATX contributed $62.1 million, representing its share of the affiliates' outstanding debt, took ownership of six chemical parcel tankers with an aggregate net book value of $88.8 million and recognized an impairment loss of $5.2 million, which is reflected in share of affiliates' earnings.

Portfolio Management's total asset base was $797.4 million at December 31, 2012 compared to $846.6 million at December 31, 2011, and $744.4 million at December 31, 2010. The estimated net book value equivalent of assets managed by Portfolio Management for third parties was $143.2 million at December 31, 2012.

Portfolio Management’s segment results are summarized below (in millions):
 
Years Ended December 31
 
2012
 
2011
 
2010
Revenues
 
 
 
 
 
Lease revenue
$
37.6

 
$
44.5

 
$
43.0

Marine operating revenue
26.4

 
17.8

 
13.1

Other revenue
2.8

 
2.0

 
1.0

   Total Revenues
66.8

 
64.3

 
57.1

Expenses
 
 
 
 
 
Marine operating expense
22.1

 
13.9

 
8.9

Depreciation
21.7

 
19.1

 
17.5

Operating lease expense
0.2

 
1.4

 
1.4

Other operating expense
0.9

 
4.3

 
1.3

   Total Expenses
44.9

 
38.7

 
29.1

 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
Net gain on asset dispositions
19.2

 
12.6

 
12.1

Interest expense, net
(27.7
)
 
(29.6
)
 
(28.2
)
Other income (expense)
3.4

 
2.8

 
(0.1
)
Share of affiliates' earnings (pre-tax)
33.4

 
36.2

 
36.9

Segment Profit   
$
50.2

 
$
47.6

 
$
48.7

 
 
 
 
 
 
Investment Volume   
$
83.5

 
$
172.0

 
$
97.4



37



Comparison of Year Ended December 31, 2012, to Year Ended December 31, 2011

Segment Profit

Portfolio Management's segment profit of $50.2 million was $2.6 million higher than the prior year. The increase was primarily due to higher net gains on asset dispositions, higher earnings from the RRPF Affiliates and lower operating costs, partially offset by the impairment loss at the Enerven affiliate.

Revenues

Lease income was $6.9 million lower than the prior year, primarily due to the sale of barges and other equipment. Marine operating revenue was $8.6 million higher than prior year, primarily due to a full year of income from the six vessels received from the former Clipper Fourth affiliates late in 2011. Other income was $0.8 million higher than prior year, primarily due to interest income from new loans.

Expenses
    
Marine operating expense increased $8.2 million and depreciation expense increased $2.6 million, both primarily due to a full year of expense for the six vessels. Operating lease expense decreased $1.2 million, primarily due to the sale of barges at the end of the prior year and the early termination of a lease in the current year. Other operating expense decreased $3.4 million, primarily due to a $2.6 million decrease in other operating costs for owned and pooled barges and higher reversals of provisions for losses, which were $1.2 million in 2012 and $0.4 million in 2011. In 2012, a reversal was recorded upon the sale of a non-performing leveraged lease investment.


38


Other Income (Expense)

Net gains on asset dispositions increased $6.6 million, primarily due to a $5.3 million residual sharing fee from a sale in the managed portfolio and lower asset impairment charges, partially offset by a $2.1 million decrease in gains on the sale of owned equipment. Impairment charges in 2011 were primarily related to further impairments of a corporate aircraft on lease and a helicopter held for sale. Interest expense decreased $1.9 million, primarily due to lower rates.

Share of affiliates' earnings was $2.8 million lower than the prior year. The variance was significantly impacted by impairment losses and remarketing gains in each year. Earnings in 2012 included impairments and operating losses from the Enerven affiliate of $18.9 million and earnings of $44.8 million from the RRPF Affiliates, including $16.7 million of asset remarketing income. Earnings in 2011 included operating and impairment losses from the Clipper Fourth affiliates of $8.5 million, operating losses from the Enerven affiliate of $3.2 million and earnings from the RRPF Affiliates of $38.6 million, including $9.7 million of asset remarketing income.

Investment Volume

Investment volume in 2012 primarily consisted of $37.0 million in barges and other marine equipment, $29.7 million of investments in affiliates, and $14.9 million in container assets. Investment volume in 2011 primarily consisted of $113.4 million of investments in affiliates, $31.9 million in senior secured loans and $26.0 million in barges. The 2011 affiliate investments included $62.1 million related to the wind-up and dissolution of the Clipper Fourth affiliates and $20.4 million related to investments in container assets.

Comparison of Year Ended December 31, 2011, to Year Ended December 31, 2010

Segment Profit

Portfolio Management's segment profit of $47.6 million in 2011 was $1.1 million lower than 2010. The decrease was primarily due to higher asset impairment charges and operating expenses in 2011, partially offset by higher asset remarketing income.

Revenues

Lease income was $1.5 million higher than 2010, primarily due to income from new leases. Marine operating revenue was $4.7 million higher than 2010, primarily due to income from six vessels acquired from an affiliate late in 2011. Other income was $1.0 million higher than 2010, primarily due to interest income from new loans.

Expenses

Marine operating expense increased $5.0 million and depreciation expense increased $1.6 million from 2010, primarily due to expense from the six acquired vessels. Other operating expense increased $3.0 million, primarily due to a $1.7 million increase in other operating costs for owned and pooled barges.

Other Income (Expense)

Net gain on asset dispositions increased $0.5 million, primarily due to a $5.6 million increase in disposition gains on the sale of barges and other equipment in 2011, partially offset by lower residual sharing fees on sales in the managed portfolio, which were $4.4 million in 2011 and $7.6 million in 2010, and higher asset impairment charges. Impairment charges in 2010 were primarily related to the impairment of a corporate aircraft on lease. Charges in 2011 were primarily related to a impairment of the helicopter held for sale, as well as impairments of the corporate aircraft and an investment fund. Interest expense was $1.4 million higher than 2010, primarily due to higher average debt balances offset by lower rates. Other income was $2.9 million higher than 2010, primarily due to gains on the sale of securities and investment fund gains in 2011.

Share of affiliates' earnings decreased $0.7 million from 2010, primarily due to impairment losses in 2011 at the Clipper Fourth affiliates and lower earnings from the Clipper Third affiliate resulting from the sales of vessels in each year, partially offset by increased earnings from the RRPF Affiliates. In 2011, the RRPF Affiliates contributed earnings of $38.6 million, including $9.7 million of asset remarketing income, compared to $31.1 million of earnings in 2010, including $3.9 million of asset remarketing income.

39


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.

Components of Other are outlined below (in millions):

 
Years Ended December 31
 
2012
 
2011
 
2010
Selling, general and administrative expense
$
160.2

 
$
155.3

 
$
134.8

Unallocated interest expense, net
5.4

 
4.5

 
3.5

Other expense (income) (including eliminations)
(1.3
)
 
0.3

 
(7.8
)

SG&A, Unallocated Interest and Other

In 2012, SG&A of $160.2 million increased $4.9 million, or 3.2%, from 2011. The increase was primarily due to higher compensation and post-employment benefits expenses offset by lower outside services expenses. In 2011, SG&A of $155.3 million increased $20.5 million, or 15.2%, from 2010. The increase was driven by higher compensation expenses, IT expenditures and outside services spending. The increases in compensation expense in 2011 through 2012 were largely attributable to a gradual return to prior staffing levels and historical compensation practices.

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 the Company’s consolidated leverage position as well as the timing of debt issuances and segment investments.

Other expense was immaterial for 2012 and 2011. Other expense in 2010 primarily reflected a $6.5 million benefit from the resolution of a litigation matter and a $1.7 million recovery on a previously impaired money market fund investment, partially offset by a $2.0 million addition to an environmental liability related to a sold facility. Eliminations were immaterial for all periods presented.

Consolidated Income Taxes

In 2012, GATX's effective tax rate was 18.2% compared to 27.1% in 2011 and 11.8% in 2010. The current year included $15.5 million of previously unrecognized tax benefits resulting from the expiration of the applicable statute of limitations. Additionally, the 2012 tax provision reflected the benefit of the utilization of $13.7 million in foreign tax credits offset by $6.3 million of tax expenses associated with the incremental taxable income and withholding taxes on foreign dividends repatriated during the year. In 2011, a $4.8 million benefit was recognized attributable to the reversal of accruals associated with the close of a domestic tax audit. 2010 included a $9.5 million benefit attributable to the reversal of accruals resulting from the close of certain domestic and foreign tax audits. Excluding the impact of the tax adjustments noted herein, GATX's effective tax rate was 34.1% in 2012, 31.5% in 2011 and 28.0% in 2010. The difference in effective tax rates was driven by the mix of domestic and foreign earnings, which are taxed at lower rates.

Separately, income taxes for GATX's affiliates in 2012, 2011 and 2010 were $2.0 million, $8.2 million and $9.6 million, respectively. These amounts were favorably impacted by deferred tax benefits of $4.6 million, $4.1 million and $1.9 million for 2012, 2011 and 2010, respectively, associated with income tax rate reductions enacted in the United Kingdom.

See Note 12 to the consolidated financial statements for additional information on income taxes.

BALANCE SHEET DISCUSSION

Assets

Assets were $6.1 billion at December 31, 2012, compared to $5.9 billion at December 31, 2011. In addition to assets recorded on its balance sheet, GATX utilized approximately $0.9 billion of off balance sheet assets, primarily railcars that were financed with operating

40


leases and therefore were not recorded on the balance sheet. The off balance sheet assets represent the estimated present value of GATX’s committed future operating lease payments.

The following table presents assets by segment as of December 31 (in millions):
 
2012
 
2011
 
 
 
On
Balance
Sheet
 
Off
Balance
Sheet
 
Total
 
On
Balance
Sheet
 
Off
Balance
Sheet
 
Total
Rail North America
$
3,601.1

 
$
863.5

 
$
4,464.6

 
$
3,540.2

 
$
884.5

 
$
4,424.7

Rail International
1,105.8

 

 
1,105.8

 
903.2

 

 
903.2

ASC
284.2

 
21.0

 
305.2

 
276.1

 

 
276.1

Portfolio Management
797.4

 

 
797.4

 
844.0

 
2.6

 
846.6

Other
266.9

 

 
266.9

 
294.0

 

 
294.0

 
$
6,055.4

 
$
884.5

 
$
6,939.9

 
$
5,857.5

 
$
887.1

 
$
6,744.6


Gross Receivables

Receivables of $361.3 million at December 31, 2012, decreased $80.7 million from December 31, 2011, primarily due to the sale of leveraged lease investments in 2012.

Allowance for Losses

The purpose of the allowance is to provide an estimate of credit losses inherent in reservable assets. Reservable assets are divided into two categories: rent and other receivables, which represent short-term trade billings, and loans and finance lease receivables. Reserves for rent and other receivables are based on historical loss experience and judgments about the impact of present economic conditions, collateral values, and the state of the markets in which GATX operates. In addition, GATX may establish specific reserves for known troubled accounts. Reserve estimates for loans and finance lease receivables are generally evaluated on a customer specific basis, considering the same factors as rent and other receivables as well as a regular assessment of each customer’s specific credit situation. Amounts are charged against the allowance when they are deemed to be uncollectible. There were no material changes in estimation methods or assumptions for the allowance during 2012. GATX believes that the allowance is adequate to cover losses inherent in its reservable assets as of December 31, 2012. Since the allowance is based on judgments and estimates, actual losses incurred may differ from the estimate.

As of December 31, 2012, general allowances for trade receivables were $3.4 million, or 3.9% of rent and other receivables, compared to $2.8 million, or 3.7%, at December 31, 2011. Specific allowances for finance leases were $1.2 million at December 31, 2012, compared to $9.0 million at December 31, 2011. The decrease in specific allowances was primarily related to the sale of a non-performing leveraged lease investment.

The following summarizes changes in GATX’s allowance for losses as of December 31 (in millions):
 
2012
 
2011
Beginning balance
$
11.8

 
$
11.6

(Reversal) provision for losses
(0.6
)
 
0.2

Charges to allowance
(7.8
)
 
(0.5
)
Recoveries and other, including foreign exchange adjustments
1.2

 
0.5

Ending balance
$
4.6

 
$
11.8



41


Operating Assets and Facilities

Net operating assets and facilities increased $295.1 million from 2011. The increase was primarily due to new investments of $709.8 million and foreign exchange rate effects of $34.8 million, partially offset by depreciation expense of $242.0 million, dispositions of $127.4 million and sale-leasebacks of $79.4 million.

Investments in Affiliated Companies

Investments in affiliated companies decreased $11.8 million in 2012, primarily due to dividend and capital distributions of $65.7 million, partially offset by new investments of $29.7 million, and equity earnings of $21.6 million.

The following table shows GATX’s investment in affiliated companies by segment as of December 31 (in millions):
 
2012
 
2011
Rail North America
$
46.9

 
$
54.0

Rail International
77.2

 
88.2

Portfolio Management
377.9

 
371.6

 
$
502.0

 
$
513.8


See Note 6 to the consolidated financial statements for additional information about investments in affiliated companies.

Goodwill

In 2012 and 2011, changes in the balance of GATX’s goodwill, all of which is attributable to the Rail North America and Rail International segments, resulted solely from changes in foreign currency exchange rates. GATX tested its goodwill for impairment in the fourth quarter of 2012 and no impairment was indicated.

Debt

Total debt increased $20.8 million from the prior year, primarily due to long-term debt issuances of $448.8 million and net borrowings of $243.3 million from commercial paper and bank credit facilities, partially offset by scheduled maturities and principal payments of $671.2 million.

The following table sets forth the details of GATX’s long-term debt issuances in 2012 ($ in millions):
Type of Debt
Term
 
Interest Rate
 
Principal Amount
Recourse Unsecured
10.0 Years
 
4.75% Fixed
 
$
250.0

Recourse Unsecured
5.0 Years
 
1.88% Floating (a)
 
100.0

Recourse Unsecured
7.3 Years
 
2.47% Floating (a)
 
63.8

Recourse Unsecured
5.5 Years
 
2.25% Floating (a)
 
35.0

 
 
 
 
 
$
448.8

________
(a)
Reflects interest rate at December 31, 2012


42


The following table summarizes the carrying value of GATX’s debt by major component, including off balance sheet debt, as of December 31, 2012 (in millions):
 
Secured
 
Unsecured
 
Total
Commercial paper and borrowings under bank credit facilities
$

 
$
273.6

 
$
273.6

Recourse debt
293.4

 
2,859.0

 
3,152.4

Nonrecourse debt
130.6

 

 
130.6

Capital lease obligations
11.3

 

 
11.3

Balance sheet debt
435.3

 
3,132.6

 
3,567.9

Recourse off balance sheet debt (a)
730.1

 

 
730.1

Nonrecourse off balance sheet debt (a)
154.4

 

 
154.4

 
$
1,319.8

 
$
3,132.6

 
$
4,452.4

________
(a) 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.

Equity

Total equity increased $116.9 million from the prior year, primarily due to $137.3 million of net income, $14.1 million from the effects of share based compensation, $11.7 million of unrealized gains on derivatives and $25.0 million of foreign currency translation adjustments due to the balance sheet effects of a weaker U.S. dollar, partially offset by $59.1 million of dividends, and $12.4 million from the effect of post-retirement benefit plan adjustments.

CASH FLOW DISCUSSION

GATX generates a significant amount of cash from its operating activities and proceeds from its investment portfolio, which is used to service debt, fund portfolio investments and capital additions, and pay dividends. Cash flows from operations and portfolio proceeds are impacted by changes in working capital and the timing of asset dispositions. As a result, cash flow components may vary materially from quarter to quarter and year to year. As of December 31, 2012, GATX had unrestricted cash balances of $234.2 million.

Net Cash Provided by Operating Activities

Net cash provided by operating activities of $370.2 million increased $63.4 million compared to 2011. The increase was primarily driven by higher Rail North America lease income, ASC segment profit and dividends from affiliates, as well as changes in working capital.

Portfolio Investments and Capital Additions

Portfolio investments and capital additions primarily consist of purchases of operating assets, investments in joint ventures, loans and capitalized asset improvements. Portfolio investments and capital additions of $770.0 million increased $155.4 million compared to 2011. The increase was primarily driven by significantly higher railcar investments. The timing of investments is dependent on purchase commitments, transaction opportunities and market conditions.

The following table presents portfolio investments and capital additions by segment for the years ended December 31 (in millions):
 
2012
 
2011
 
2010
Rail North America
$
465.9

 
$
280.5

 
$
367.1

Rail International
200.1

 
140.8

 
107.5

ASC
12.6

 
17.4

 
9.0

Portfolio Management
83.5

 
172.0

 
97.4

Other
7.9

 
3.9

 
4.1

 
$
770.0

 
$
614.6

 
$
585.1


43



Portfolio Proceeds

Portfolio proceeds primarily consist of loan and finance lease receipts, proceeds from sales of operating assets and sales of securities, and capital distributions from affiliates. The increase in proceeds from sales of operating assets in 2012 compared to 2011 was primarily due to sales of leveraged lease investments and increased sales of North American railcars and locomotives. The increase in capital distributions from affiliates in 2012 compared to 2011 was primarily due to the sale of affiliate vessels and railcars.

Portfolio proceeds were as follows for the years ended December 31 (in millions):
 
2012
 
2011
 
2010
Finance lease rents received, net of earned income and leveraged lease nonrecourse debt service
$
13.8

 
$
24.1

 
$
12.6

Loan principal received
4.2

 
2.2

 
––

Proceeds from sales of operating assets
235.3

 
114.8

 
47.3

Other investment distributions and sales of securities
3.7

 
0.2

 
0.1

Capital distributions from affiliates
30.6

 
6.1

 
18.1

Other portfolio proceeds
1.3

 
6.7

 
6.2

 
$
288.9

 
$
154.1

 
$
84.3


Other Investing Activity

Proceeds from sales of other assets for all periods primarily related to the scrapping of railcars. In 2012 and 2010, Rail North America completed sale-leasebacks for 1,062 and 947 railcars, respectively. In 2012, 2011 and 2010, Rail North America acquired 47, 2,721 and 292 railcars, respectively, that were previously leased-in. Other investing activity in 2010 consisted of recoveries from a money market fund investment that became illiquid in 2008.

GATX’s restricted cash primarily includes contractually required amounts maintained for six wholly-owned bankruptcy-remote, special-purpose corporations ("SPCs") and prior to 2012, escrowed funds subject to a litigation matter in Europe. The SPCs were formed in prior years to finance railcars on a structured, nonrecourse basis. Changes in restricted cash largely represent the aggregate net change in the cash of these entities resulting from operating and financing activities. Additionally, in 2011, approximately $8 million of restricted cash was disbursed upon the settlement of the litigation matter in Europe and in 2010, $30.5 million in one-time contributions were made to the SPCs. The contributions are expected to limit payment shortfalls in the future, thus preventing related interest and penalties that might otherwise be incurred under the terms of the applicable financing arrangements.

Other investing activity was as follows for the years ended December 31 (in millions):
 
2012
 
2011
 
2010
Purchases of leased-in assets
$
(1.3
)
 
$
(61.1
)
 
$
(5.3
)
Proceeds from sales of other assets
28.4

 
42.2

 
30.4

Proceeds from sale-leasebacks
104.9

 

 
79.0

Net decrease (increase) in restricted cash
5.5

 
21.4

 
(23.4
)
Other

 

 
2.4

 
$
137.5

 
$
2.5

 
$
83.1



44


Net Cash provided by Financing Activities

Net cash (used in) provided by financing activities was as follows for the years ended December 31 (in millions):
 
2012
 
2011
 
2010
Net proceeds from issuances of debt (original maturities longer than 90 days)
$
445.2

 
$
790.3

 
$
573.8

Repayments of debt (original maturities longer than 90 days)
(671.2
)
 
(312.8
)
 
(344.2
)
Net increase (decrease) in debt with original maturities of 90 days or less
243.3

 
(85.0
)
 
46.8

Payments on capital lease obligations
(3.0
)
 
(18.5
)
 
(12.8
)
Cash dividends
(58.8
)
 
(56.0
)
 
(53.5
)
Other
4.6

 
5.2

 
0.9

 
$
(39.9
)
 
$
323.2

 
$
211.0


LIQUIDITY AND CAPITAL RESOURCES

General

GATX funds its investments and meets its debt, lease and dividend obligations through available cash balances, cash generated from operating activities, portfolio proceeds, sales of other assets, commercial paper issuances, committed revolving credit facilities and the issuance of secured and unsecured debt. Cash from operations and commercial paper issuances are the primary sources of cash used to fund daily operations. GATX utilizes both domestic and international capital markets and banks for its debt financing needs.

Contractual and Other Commercial Commitments

At December 31, 2012, GATX’s contractual commitments, including debt maturities, lease payments, and portfolio investments were (in millions):
 
Payments Due by Period
 
Total
 
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
Recourse debt
$
3,147.2

 
$
452.1

 
$
455.4

 
$
521.4

 
$
618.7

 
$
233.4

 
$
866.2

Nonrecourse debt
133.9

 
33.6

 
58.2

 
31.1

 
8.2

 
2.8

 

Commercial paper and credit facilities
273.6

 
273.6

 

 

 

 

 

Capital lease obligations
13.1

 
3.1

 
3.1

 
3.1

 
2.7

 
1.1

 

Operating leases — recourse
982.9

 
115.3

 
119.7

 
139.7

 
101.5

 
89.3

 
417.4

Operating leases — nonrecourse
201.0

 
27.9

 
27.4

 
26.0

 
21.9

 
22.5

 
75.3

Portfolio investments *
1,466.9

 
517.5

 
391.4

 
352.0

 
198.2

 
1.1

 
6.7

 
$
6,218.6

 
$
1,423.1

 
$
1,055.2

 
$
1,073.3

 
$
951.2

 
$
350.2