UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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, Illinois 60606-5314
(Address of principal executive offices, including zip code)

(312) 621-6200
(Registrant’s telephone number, including area code)

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 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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

þ Large accelerated filer		o Accelerated filer		o Non-accelerated filer		o Smaller reporting company
				(Do not check if a 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

As of March 31, 2011, 46.4 million common shares were outstanding.

 

 

GATX CORPORATION
FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED March 31, 2011

INDEX

Item No.		Page No.
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)			1
Consolidated Statements of Income (Unaudited)			2
Consolidated Statements of Cash Flows (Unaudited)			3
Notes to the Consolidated Financial Statements (Unaudited)			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements			13
Business Overview			13
Discussion of Operating Results			14
Segment Operations			15
Cash Flow and Liquidity			22
Critical Accounting Policies			24
Non-GAAP Financial Measures			24
Item 3. Quantitative and Qualitative Disclosures about Market Risk			25
Item 4. Controls and Procedures			25
Item 5. Other Information			26
Part II — OTHER INFORMATION
Item 1. Legal Proceedings			27
Item 1A. Risk Factors			27
Item 6. Exhibits			28
SIGNATURE			29
EXHIBIT INDEX			30
EX-10.1
EX-10.1.A
EX-10.2
EX-31.A
EX-31.B
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

GATX CORPORATION AND SUBSIDIARIES

		March 31				December 31
		2011				2010
Assets
Cash and Cash Equivalents		$	53.9			$	78.5
Restricted Cash			54.7				56.6
Receivables
Rent and other receivables			63.6				71.1
Finance leases			333.8				347.7
Less: allowance for possible losses			(11.6	)			(11.6	)
			385.8				407.2
Operating Assets and Facilities
Rail (includes $123.6 and $123.7 relating to a consolidated VIE at March 31, 2011 and December 31, 2010, respectively)			5,593.4				5,513.6
Specialty			288.8				280.8
ASC			394.2				389.1
Less: allowance for depreciation (includes $15.0 and $13.6 relating to a consolidated VIE at March 31, 2011 and December 31, 2010, respectively)			(2,086.7	)			(2,049.7	)
			4,189.7				4,133.8
Investments in Affiliated Companies			524.6				486.1
Goodwill			96.7				92.7
Other Assets			193.3				187.5
Total Assets		$	5,498.7			$	5,442.4
Liabilities and Shareholders’ Equity
Accounts Payable and Accrued Expenses		$	126.4			$	114.6
Debt
Commercial paper and borrowings under bank credit facilities			175.8				115.6
Recourse			2,810.6				2,801.8
Nonrecourse (includes $53.5 and $56.2 relating to a consolidated VIE at March 31, 2011 and December 31, 2010, respectively)			193.1				217.2
Capital lease obligations			40.6				41.9
			3,220.1				3,176.5
Deferred Income Taxes			759.0				750.6
Other Liabilities			239.5				287.0
Total Liabilities			4,345.0				4,328.7
Shareholders’ Equity
Preferred stock ($1.00 par value, 5,000,000 shares authorized, 16,644 and 16,694 shares of Series A and B $2.50 Cumulative Convertible Preferred Stock issued and outstanding as of March 31, 2011 and December 31, 2010, respectively, aggregate liquidation preference of $1.0)			*				*
Common stock ($0.625 par value, 120,000,000 authorized, 65,513,444 and 65,482,950 shares issued and 46,390,924 and 46,360,430 shares outstanding as of March 31, 2011 and December 31, 2010, respectively)			40.9				40.9
Additional paid in capital			630.0				626.2
Retained earnings			1,122.7				1,116.9
Accumulated other comprehensive loss			(79.6	)			(110.0	)
Treasury stock at cost (19,122,520 shares at March 31, 2011 and December 31, 2010)			(560.3	)			(560.3	)
Total Shareholders’ Equity			1,153.7				1,113.7
Total Liabilities and Shareholders’ Equity		$	5,498.7			$	5,442.4

The accompanying notes are an integral part of these consolidated financial statements.

GATX CORPORATION AND SUBSIDIARIES

		Three Months Ended
		March 31
		2011				2010
Gross Income
Lease income		$	224.8			$	221.2
Marine operating revenue			11.1				8.3
Asset remarketing income			8.9				14.4
Other income			20.2				19.7
Revenues			265.0				263.6
Share of affiliates’ earnings			17.1				18.3
Total Gross Income			282.1				281.9
Ownership Costs
Depreciation			52.3				51.7
Interest expense, net			42.9				42.6
Operating lease expense			34.6				34.6
Total Ownership Costs			129.8				128.9
Other Costs and Expenses
Maintenance expense			69.3				67.8
Marine operating expense			8.9				6.4
Selling, general and administrative			36.4				33.5
Other expense			11.9				19.0
Total Other Costs and Expenses			126.5				126.7
Income before Income Taxes			25.8				26.3
Income Taxes			5.9				7.6
Net Income		$	19.9			$	18.7
Per Share Data
Basic		$	0.43			$	0.41
Average number of common shares (in millions)			46.3				46.0
Diluted		$	0.42			$	0.40
Average number of common shares and common share equivalents (in millions)			47.0				47.5
Dividends declared per common share		$	0.29			$	0.28

The accompanying notes are an integral part of these consolidated financial statements.

GATX CORPORATION AND SUBSIDIARIES

		Three Months Ended
		March 31
		2011				2010
Operating Activities
Net income		$	19.9			$	18.7
Adjustments to reconcile income to net cash provided by (used in) operating activities:
Gains on sales of assets			(14.4	)			(17.1	)
Depreciation			55.1				54.3
Asset impairment charges			0.6				4.8
Deferred income taxes			4.3				5.1
Share of affiliates’ earnings, net of dividends			(17.1	)			(14.4	)
Change in income taxes payable			4.7				(4.5	)
Change in accrued operating lease expense			(48.5	)			(52.9	)
Employee benefit plans			(1.3	)			(1.5	)
Other			33.5				7.2
Net cash provided by (used in) operating activities			36.8				(0.3	)
Investing Activities
Additions to operating assets and facilities			(69.8	)			(67.8	)
Loans extended			(9.1	)			—
Investments in affiliates			(17.2	)			(2.3	)
Other			(0.1	)			(0.1	)
Portfolio investments and capital additions			(96.2	)			(70.2	)
Purchases of leased-in assets			(37.7	)			—
Portfolio proceeds			43.5				30.8
Proceeds from sales of other assets			11.3				7.0
Net decrease (increase) in restricted cash			1.9				(0.4	)
Other			(0.1	)			—
Net cash used in investing activities			(77.3	)			(32.8	)
Financing Activities
Net proceeds from issuances of debt (original maturities longer than 90 days)			—				259.1
Repayments of debt (original maturities longer than 90 days)			(26.8	)			(51.9	)
Net increase (decrease) in debt with original maturities of 90 days or less			58.4				(26.9	)
Payments on capital lease obligations			(1.4	)			(1.4	)
Employee exercises of stock options			0.5				0.1
Cash dividends			(14.5	)			(13.9	)
Net cash provided by financing activities			16.2				165.1
Effect of Exchange Rate Changes on Cash and Cash Equivalents			(0.3	)			0.1
Net (decrease) increase in Cash and Cash Equivalents during the period			(24.6	)			132.1
Cash and Cash Equivalents at beginning of period			78.5				41.7
Cash and Cash Equivalents at end of period		$	53.9			$	173.8

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. Description of Business

     GATX Corporation (“GATX” or the “Company”) leases, operates and manages long-lived, widely-used assets in the rail, marine and industrial equipment markets. GATX also invests in joint ventures that complement existing business activities. Headquartered in Chicago, Illinois, GATX has three financial reporting segments: Rail, Specialty and American Steamship Company (“ASC”).

NOTE 2. Basis of Presentation

     The accompanying unaudited consolidated financial statements of GATX Corporation and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by these accounting principles for complete financial statements. In the opinion of management, all adjustments (which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2011, are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2011. In particular, ASC’s fleet is generally inactive for a significant portion of the first quarter of each year due to the winter conditions on the Great Lakes. In addition, the timing of asset remarketing income is dependent, in part, on market conditions and, therefore, does not occur evenly from period to period. For further information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2010, as set forth in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”).

Accounting Adjustment

     During the first quarter of 2010, the Company discovered a clerical error in the preparation of its Consolidated Balance Sheet as of December 31, 2009, and Consolidated Statement of Cash Flows for the quarter and year ended December 31, 2009. The error resulted in a $13.1 million overstatement in each of cash and cash equivalents; accounts payable and accrued expenses; and net cash provided by operating activities. Management has determined that the effect of this error is immaterial and adjusted its Consolidated Balance Sheet and Consolidated Statement of Cash Flows in 2010 to correct this error.

NOTE 3. Investments in Affiliated Companies

     Investments in affiliated companies represent investments in, and loans to and from, domestic and foreign companies and joint ventures that are in businesses similar to those of GATX, such as lease financing and related services for customers operating rail, marine and industrial equipment assets, as well as other business activities, including ventures that provide asset residual value guarantees.

     Operating results for all affiliated companies, assuming GATX held a 100% interest, would be (in millions):

		Three Months Ended
		March 31
		2011				2010
Revenues		$	173.5			$	176.1
Pre-tax income reported by affiliates			49.1				31.1

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

NOTE 4. Fair Value Disclosure

     The following tables set forth GATX’s assets and liabilities measured at fair value on a recurring basis (in millions):

						Quoted Prices in				Significant				Significant
						Active Markets for				Observable				Unobservable
		March 31,				Identical Assets				Inputs				Inputs
		2011				(Level 1)				(Level 2)				(Level 3)
Assets
Interest rate derivatives (a)		$	16.1			$	—			$	16.1			$	—
Warrants and foreign exchange rate derivatives (b)			1.4				—				1.4				—
Available for sale equity securities			4.3				4.3				—				—
Liabilities
Interest rate derivatives (a)			4.3				—				4.3				—
Foreign exchange rate derivatives (b)			0.5				—				0.5				—
						Quoted Prices in				Significant				Significant
						Active Markets for				Observable				Unobservable
		December 31,				Identical Assets				Inputs				Inputs
		2010				(Level 1)				(Level 2)				(Level 3)
Assets
Interest rate derivatives (a)		$	17.6			$	—			$	17.6			$	—
Warrants (b)			0.8				—				0.8				—
Available for sale equity securities			4.3				4.3				—				—
Liabilities
Interest rate derivatives (a)			4.6				—				4.6				—
Foreign exchange rate derivatives (b)			0.5				—				0.5				—

     Available for sale equity securities are valued based on quoted prices in an active exchange market. Warrants and derivative contracts are valued using a pricing model with inputs (such as yield curves and credit spreads) that are observable in the market or can be derived principally from or corroborated by observable market data.

     The following table sets forth certain disclosures relating to GATX’s non-recurring Level 3 fair value measurements as of March 31 (in millions):

		Fair Value of Assets				Carrying Value of Assets				Impairment Losses
2011		$	0.7			$	1.3			$	0.6
2010			3.0				7.8				4.8

     In 2011, impairment losses of $0.6 million related to scrapped wheelsets in Rail’s European fleet. In 2010, impairment losses of $4.8 million related to an industry-wide, regulatory mandate issued by the Association of American Railroads that resulted in a significant decrease to the expected economic life of 358 aluminum hopper railcars. In each case, the fair value was determined using discounted cash flow methodologies and third-party appraisal data, as applicable.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Derivative instruments

     GATX recognizes all derivative instruments at fair value and classifies them on the balance sheet as either other assets or other liabilities. Classification of derivative activity in the statements of income and cash flows is generally determined by the nature of the hedged item. Gains and losses on derivatives that are not accounted for as hedges are classified as other operating expenses and the related cash flows are included in cash flows from operating activities. Although GATX does not hold or issue derivative financial instruments for purposes other than hedging, certain derivatives may not qualify for hedge accounting. Changes in the fair value of these derivatives are recognized in earnings immediately.

     Fair Value Hedges — GATX uses interest rate swaps to convert fixed rate debt to floating rate debt and to manage the fixed to floating rate mix of its debt obligations. For fair value hedges, changes in fair value of both the derivative and the hedged item are recognized in earnings as interest expense. As of March 31, 2011 and December 31, 2010, GATX had three instruments outstanding with an aggregate notional amount of $350.0 million for each period. As of March 31, 2011, these derivatives had maturities ranging from 2012-2015.

     Cash Flow Hedges — GATX uses interest rate swaps to convert floating rate debt to fixed rate debt and to manage the fixed to floating rate mix of its debt obligations. GATX also uses interest rate swaps and Treasury rate locks to hedge its exposure to interest rate risk on existing and anticipated transactions. As of March 31, 2011 and December 31, 2010, GATX had 15 instruments and 13 instruments outstanding, respectively, with an aggregate notional amount of $230.0 million and $130.4 million, respectively. As of March 31, 2011, these derivatives had maturities ranging from 2011-2015. Within the next 12 months, GATX expects to reclassify $6.3 million ($4.0 million after-tax) of net losses on previously terminated derivatives from accumulated other comprehensive income (loss) to earnings. Amounts are reclassified when interest and operating expense related to the hedged risks affect earnings.

     Certain of GATX’s derivative instruments contain credit risk provisions that could require GATX to make immediate payment on net liability positions in the event that GATX defaulted on certain outstanding debt obligations. The aggregate fair value of all derivative instruments with credit risk related contingent features that are in a liability position as of March 31, 2011 was $4.3 million. GATX is not required to post any collateral on its derivative instruments and does not expect the credit risk provisions to be triggered.

     In the event that a counterparty fails to meet the terms of the interest rate swap agreement or a foreign exchange contract, GATX’s exposure is limited to the fair value of the swap if in GATX’s favor. GATX manages the credit risk of counterparties by transacting only with institutions that the Company considers financially sound and by avoiding concentrations of risk with a single counterparty. GATX considers the risk of non-performance by a counterparty to be remote.

     The income statement and other comprehensive income impacts of GATX’s derivative instruments were (in millions):

						Three Months Ended
						March 31
Derivative Designation				Location of Gain (Loss) Recognized		2011				2010
Fair value hedges (a)				Interest expense		$	(2.1	)		$	2.5
Cash flow hedges				Amount recognized in other comprehensive income (loss) (effective portion)			1.0				(3.4	)
Cash flow hedges				Amount reclassified from accumulated other comprehensive loss to interest expense (effective portion)			(1.9	)			(1.8	)
Cash flow hedges				Amount reclassified from accumulated other comprehensive loss to operating lease expense (effective portion)			(0.4	)			(0.4	)
Cash flow hedges				Amount recognized in other expense (ineffective portion)			*				*

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Other Financial Instruments

     The carrying amounts of cash and cash equivalents, restricted cash, money market funds, rent and other receivables, accounts payable, commercial paper and bank credit facilities approximate fair value due to the short maturity of those instruments. The fair values of investment funds were based on the best information available and may include quoted investment fund values. The fair values of fixed and floating rate debt were estimated based on discounted cash flow analyses using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The following table sets forth the carrying amounts and fair values of GATX’s other financial instruments as of (in millions):

		March 31, 2011								December 31, 2010
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
Assets
Investment Funds		$	5.6			$	8.1			$	6.8			$	10.2
Liabilities
Recourse fixed rate debt		$	2,467.0			$	2,606.3			$	2,459.3			$	2,615.9
Recourse floating rate debt			343.6				343.6				342.5				341.5
Nonrecourse debt			193.1				207.3				217.2				233.0

NOTE 5. Commercial Commitments

     In connection with certain investments or transactions, GATX has entered into various commercial commitments, such as guarantees and standby letters of credit, which could potentially require performance in the event of demands by third parties. Similar to GATX’s balance sheet investments, these guarantees expose GATX to credit, market and equipment risk; accordingly, GATX evaluates its commitments and other contingent obligations using techniques similar to those used to evaluate funded transactions.

     The following table shows GATX’s commercial commitments as of (in millions):

		March 31				December 31
		2011				2010
Affiliate guarantees		$	30.0			$	30.0
Asset residual value guarantees			48.9				48.0
Lease payment guarantees			51.2				52.7
Total guarantees (a)			130.1				130.7
Standby letters of credit and bonds			11.0				11.5
		$	141.1			$	142.2

     Affiliate guarantees generally involve guaranteeing repayment of the financing utilized to acquire or lease-in assets and are in lieu of making direct equity investments in the affiliate. GATX is not aware of any event of default that would require it to satisfy these guarantees and expects the affiliates to generate sufficient cash flow to satisfy their lease and loan obligations.

     Asset residual value guarantees represent GATX’s commitment to third parties that an asset or group of assets will be worth a specified amount at the end of a lease term. GATX earns an initial fee for providing these asset value guarantees, which is amortized into income over the guarantee period. Upon disposition of the assets, GATX receives a share of any proceeds in excess of the amount guaranteed and such residual sharing gains are recorded in asset remarketing income. If at the end of the lease term, the net realizable value of the asset is less than the guaranteed amount, any liability resulting from GATX’s performance pursuant to the residual value guarantee will be reduced by the value realized from disposition of the asset. Asset residual value guarantees include those related to assets of affiliated companies.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

     Lease payment guarantees represent GATX’s guarantees to financial institutions of finance and operating lease payments to unrelated parties. Any liability resulting from GATX’s performance pursuant to the lease payment guarantees will be reduced by the value realized from the underlying asset or group of assets.

     GATX and its subsidiaries are also parties to standing letters of credit and bonds primarily related to workers’ compensation and general liability insurance coverages. No material claims have been made against these obligations. At March 31, 2011, GATX does not expect any material losses to result from these off balance sheet instruments since performance is not anticipated to be required.

NOTE 6. Variable Interest Entities

     GATX evaluates whether an entity is a VIE based on the sufficiency of the entity’s equity and whether the equity holders have the characteristics of a controlling financial interest. To determine if it is the primary beneficiary of a VIE, GATX assesses whether it has the power to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that may be significant to the VIE. These determinations are both qualitative and quantitative in nature and require certain judgments and assumptions about the VIE’s forecasted financial performance and the volatility inherent in those forecasted results. GATX evaluates new investments for VIE determination and regularly reviews all existing entities for any events that may result in an entity becoming a VIE or GATX becoming the primary beneficiary of an existing VIE.

     GATX is the primary beneficiary of a consolidated VIE related to a structured lease financing for a portfolio of railcars because it has the power to direct the significant activities of the VIE through its ownership of the equity interests in the transaction. The carrying amounts of assets and liabilities of the VIE were (in millions):

		March 31				December 31
		2011				2010
Operating assets, net of accumulated depreciation (a)		$	108.6			$	110.1
Nonrecourse debt			53.5				56.2

     GATX is also involved with other entities determined to be VIEs of which GATX is not the primary beneficiary. These VIEs are primarily leveraged leases and certain investments in affiliates that are involved in railcar and equipment leasing activities, which have been financed through a mix of equity investments and third party lending arrangements. GATX determined that it is not the primary beneficiary of these VIEs because it does not have the power to direct the activities that most significantly impact the entities’ economic performance. For certain investments in affiliates determined to be VIEs, GATX concluded that power was shared among the affiliate partners based on the terms of the relevant joint venture agreements, which require approval of all partners for significant decisions involving the VIE.

     The carrying amounts and maximum exposure to loss with respect to VIEs that GATX does not consolidate were as follows (in millions):

		March 31, 2011								December 31, 2010
		Net Carrying				Maximum Exposure				Net Carrying				Maximum Exposure
		Amount				to Loss				Amount				to Loss
Investments in affiliates		$	64.2			$	64.2			$	60.9			$	60.9
Leveraged leases			73.9				73.9				74.1				74.1
Other investment			0.9				0.9				1.0				1.0
Total		$	139.0			$	139.0			$	136.0			$	136.0

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

NOTE 7. Comprehensive Income

     The components of comprehensive income were as follows (in millions):

		Three Months Ended
		March 31
		2011				2010
Net income		$	19.9			$	18.7
Other comprehensive income, net of taxes:
Foreign currency translation gain (loss)			20.5				(15.2	)
Unrealized gain on securities			—				0.6
Unrealized gain on derivative instruments			8.8				0.9
Post retirement benefit plans			1.1				0.9
Comprehensive income		$	50.3			$	5.9

NOTE 8. Share-Based Compensation

     In the first quarter of 2011, GATX granted 415,800 stock appreciation rights (“SARs”), 200,026 restricted stock units, 87,570 performance shares and 5,805 phantom stock units. For the three months ended March 31, 2011, total share-based compensation expense was $2.5 million ($1.5 million after tax). For the three months ended March 31, 2010, total share-based compensation expense was $1.8 million ($1.1 million after tax).

     The weighted average estimated fair value of GATX’s 2011 SAR awards and underlying assumptions thereof are noted in the table below. The vesting period for the 2011 SAR grant is 3 years, with 1/3 vesting after each year.

		2011
Weighted average fair value of SAR award		$	13.88
Annual dividend		$	1.16
Expected life of the SAR, in years			4.3
Risk free interest rate			1.6	%
Dividend yield			3.4	%
Expected stock price volatility			41.91	%

NOTE 9. Income Taxes

     GATX’s effective tax rate was 23% for the three months ended March 31, 2011, compared to 29% for the three months ended March 31, 2010. The difference in GATX’s effective tax rate was largely driven by variability in the mix of pre-tax income, including share of affiliates’ earnings, among domestic and foreign jurisdictions, which are taxed at different rates.

     As of March 31, 2011, GATX’s gross liability for unrecognized tax benefits totaled $43.0 million, which, if fully recognized, would decrease income tax expense by $23.3 million ($21.2 million net of federal tax).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

NOTE 10. Pension and Other Post-Retirement Benefits

     The components of pension and other post-retirement benefit costs for the three months ended March 31, 2011 and 2010, were as follows (in millions):

										2011 Retiree				2010 Retiree
		2011 Pension				2010 Pension				Health and				Health and
		Benefits				Benefits				Life				Life
Service cost		$	1.5			$	1.4			$	—			$	0.1
Interest cost			5.2				5.5				0.5				0.6
Expected return on plan assets			(8.3	)			(8.3	)			—				—
Amortization of:
Unrecognized prior service credit			(0.3	)			(0.3	)			—				—
Unrecognized net actuarial loss			2.0				1.7				—				—
Net costs (a)		$	0.1			$	—			$	0.5			$	0.7

NOTE 11. Earnings Per Share

     Basic earnings per share were computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during each period. Shares issued or reacquired during the period, if applicable, were weighted for the portion of the period that they were outstanding. Diluted earnings per share give effect to potentially dilutive securities, including convertible preferred stock, employee stock options/SARs, restricted stock and convertible debt.

     The following table sets forth the computation of basic and diluted net income per common share (in millions, except per share amounts):

		Three Months Ended
		March 31
		2011				2010
Numerator:
Net income		$	19.9			$	18.7
Less: Dividends paid and accrued on preferred stock			*				*
Numerator for basic earnings per share — income available to common shareholders		$	19.9			$	18.7
Effect of dilutive securities:
Add: Dividends paid and accrued on preferred stock			*				*
After-tax interest expense on convertible securities			—				0.2
Numerator for diluted earnings per share — income available to common shareholders		$	19.9			$	18.9
Denominator:
Denominator for basic earnings per share — weighted average shares			46.3				46.0
Effect of dilutive securities:
Equity compensation plans			0.6				0.4
Convertible preferred stock			0.1				0.1
Convertible securities			—				1.0
Denominator for diluted earnings per share — adjusted weighted average and assumed conversion			47.0				47.5
Basic earnings per share		$	0.43			$	0.41
Diluted earnings per share		$	0.42			$	0.40

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

NOTE 12. Legal Proceedings and Other Contingencies

     Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against GATX and certain of its subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved or settled adversely. For a discussion of these matters, please refer to Note 22 to the Company’s consolidated financial statements as set forth in GATX’s Annual Report on Form 10-K for the year ended December 31, 2010. Except as noted below, there have been no material changes or developments in these matters.

Polskie Koleje Panstwowe S.A. v. DEC sp. z o.o.

     In December 2005, Polskie Koleje Panstwowe S.A. (“PKP”) filed a complaint, Polskie Koleje Panstwowe S.A. v. DEC sp. z o.o., in the Regional Court in Warsaw, Poland against DEC sp. z o.o. (“DEC”), an indirect wholly-owned subsidiary of the Company currently named GATX Rail Poland, sp. z o.o. The complaint alleges that, prior to GATX’s acquisition of DEC in 2001, DEC breached a Conditional Sales Agreement (the “Agreement”) to purchase shares of Kolsped S.A. (“Kolsped”), an indirect subsidiary of PKP. The allegedly breached condition required DEC to obtain a release of Kolsped’s ultimate parent company, PKP, from its guarantee of Kolsped’s promissory note securing a $9.8 million bank loan. Pursuant to an amendment to the Agreement, DEC satisfied this condition by providing PKP with a blank promissory note (the “DEC Note”) and a promissory note declaration which allowed PKP to fill in the DEC Note up to $10 million in the event a demand was made upon it as guarantor of Kolsped’s note to the bank (the “Kolsped Note”). In May 1999, the then current holder of the Kolsped Note, a bank (“Bank”), sued PKP under its guarantee. PKP lost the DEC Note and therefore did not use it to satisfy the guarantee, and the Bank ultimately secured a judgment against PKP in 2002. PKP also failed to notify DEC of the Bank’s lawsuit while the lawsuit was pending.

     After exhausting its appeals of the judgment entered against it, PKP filed suit against DEC in December 2005, alleging that DEC failed to fulfill its obligation to release PKP as a guarantor of the Kolsped Note and is purportedly liable to PKP, as a third party beneficiary of the Agreement. DEC filed an answer to the complaint denying the material allegations and raising numerous defenses, including, among others, that: (i) the Agreement did not create an actionable obligation, but rather was a condition precedent to the purchase of shares in Kolsped; (ii) DEC fulfilled that condition by issuing the DEC Note, which was subsequently lost by PKP and redeemed by a Polish court; (iii) PKP was not a third party beneficiary of the Agreement; and (iv) the action is barred by the governing limitations period. The first day of trial was held on March 5, 2008, and the second and final day of trial was held on December 7, 2009. On February 16, 2010, the court issued a written opinion in favor of DEC and rejecting all of PKP’s claims. PKP appealed and, on March 24, 2011, the Court of Appeals rejected the appeal and reaffirmed the trial court’s ruling. A further appeal by PKP to the Supreme Court is pending.

     As of March 31, 2011, PKP’s claims for damages totaled approximately PLN 141.6 million, or $49.8 million, which consists of the principal amount, interest and costs allegedly paid by it to the Bank and statutory interest. Statutory interest would be assessed only if the Court of Appeals, or the trial court on remand, ultimately awards damages to PKP, in which case interest would be assessed on the amount of the award from the date of filing of the claim in December 2005, to the date of the award. The Company has recorded an accrual of $15.6 million for this litigation pending final resolution on appeal. While the ultimate resolution of this matter for an amount in excess of this accrual is possible, the Company believes that any such excess would not be material to its financial position or liquidity. However, such resolution could have a material adverse effect on the results of operations in a particular quarter or fiscal year.

NOTE 13. Financial Data of Business Segments

     GATX leases, operates and manages long-lived, widely-used assets in the rail, marine and industrial equipment markets. GATX also invests in joint ventures that complement existing business activities. Headquartered in Chicago, Illinois, GATX has three financial reporting segments: Rail, Specialty and ASC.

     Rail is principally engaged in leasing tank and freight railcars, and locomotives. Rail provides railcars primarily pursuant to full-service leases, under which it maintains the railcars, pays ad valorem taxes and insurance, and provides other ancillary services. Rail also offers net leases for railcars and most of its locomotives, in which case the lessee is responsible for maintenance, insurance and taxes.

     Specialty provides leasing, asset remarketing and asset management services to the marine and industrial equipment markets. Specialty offers operating leases, direct finance leases and loans, and extends its market reach through joint venture investments.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

     ASC owns and operates the largest fleet of U.S. flagged self-unloading vessels on the Great Lakes, providing waterborne transportation of dry bulk commodities for a range of industrial customers.

     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, including earnings from affiliates, attributable to the segments as well as ownership and operating costs that management believes are directly associated with the maintenance or operation of the revenue earning assets. Operating costs include maintenance costs, marine operating costs and other operating costs such as litigation, asset impairment charges, provisions for losses, environmental costs and asset storage costs. 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, Specialty and ASC are set at 4:1, 3:1 and 1.5:1, 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.

     The following tables depict the profitability, financial position and capital expenditures of each of GATX’s business segments for the three months ended March 31, 2011 and 2010 (in millions):

		Rail				Specialty				ASC				Other				GATX Consolidated
Three Months Ended March 31, 2011
Profitability
Revenues		$	236.8			$	15.9			$	12.1			$	0.2			$	265.0
Share of affiliates’ earnings			7.1				10.0				—				—				17.1
Total gross income			243.9				25.9				12.1				0.2				282.1
Ownership costs			115.0				11.8				2.0				1.0				129.8
Other costs and expenses			77.3				3.4				9.3				0.1				90.1
Segment profit (loss)		$	51.6			$	10.7			$	0.8			$	(0.9	)			62.2
SG&A															36.4				36.4
Income before income taxes																		$	25.8
Capital Expenditures
Portfolio investments and capital additions		$	53.9			$	36.4			$	5.2			$	0.7			$	96.2
Selected Balance Sheet Data at March 31, 2011
Investments in affiliated companies		$	151.8			$	372.8			$	—			$	—			$	524.6
Identifiable assets		$	4,367.7			$	760.4			$	269.3			$	101.3			$	5,498.7
Three Months Ended March 31, 2010
Profitability
Revenues		$	236.7			$	17.4			$	9.3			$	0.2			$	263.6
Share of affiliates’ earnings			8.6				9.7				—				—				18.3
Total gross income			245.3				27.1				9.3				0.2				281.9
Ownership costs			113.7				11.2				2.1				1.9				128.9
Other costs and expenses			82.3				3.8				6.8				0.3				93.2
Segment profit (loss)		$	49.3			$	12.1			$	0.4			$	(2.0	)			59.8
SG&A															33.5				33.5
Income before income taxes																		$	26.3
Capital Expenditures
Portfolio investments and capital additions		$	48.1			$	19.6			$	1.6			$	0.9			$	70.2
Selected Balance Sheet Data at December 31, 2010
Investments in affiliated companies		$	141.0			$	345.1			$	—			$	—			$	486.1
Identifiable assets		$	4,292.4			$	741.0			$	271.3			$	137.7			$	5,442.4

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

     This document contains statements that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are subject to the safe harbor provisions of those sections and the Private Securities Litigation Reform Act of 1995. Some of these statements may be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” or other words and terms of similar meaning. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those described in GATX’s Annual Report on Form 10-K for the year ended December 31, 2010, and other filings with the Securities and Exchange Commission (“SEC”), and that actual results or developments may differ materially from those in the forward-looking statements. Specific factors that might cause actual results to differ from expectations include, but are not limited to, general economic, market, regulatory and political conditions in the rail, marine, industrial and other industries served by GATX and its customers; lease rates, utilization levels and operating costs in GATX’s primary operating segments; conditions in the capital markets; changes in GATX’s credit ratings and financing costs; regulatory rulings that may impact the economic value and operating costs of assets; costs associated with maintenance initiatives; competitive factors in GATX’s primary markets including lease pricing and asset availability; operational and financial risks associated with long-term railcar purchase commitments; changes in loss provision levels within GATX’s portfolio; impaired asset charges that may result from changing market conditions or portfolio management decisions implemented by GATX; the opportunity for remarketing income; and 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.

Business Overview

     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.

     GATX Corporation (“GATX” or the “Company”) leases, operates and manages long-lived, widely-used assets in the rail, marine and industrial equipment markets. GATX also invests in joint ventures that complement existing business activities. Headquartered in Chicago, Illinois, GATX has three financial reporting segments: Rail, Specialty and American Steamship Company (“ASC”).

     Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2011. For further information, refer to GATX’s Annual Report on Form 10-K, as filed with the SEC, which contains the Company’s consolidated financial statements for the year ended December 31, 2010.

DISCUSSION OF OPERATING RESULTS

     Net income was $19.9 million, or $0.42 per diluted share, for the first quarter of 2011 compared to net income of $18.7 million, or $0.40 per diluted share, for the first quarter of 2010. Results for the first quarter of 2011 include $6.4 million, or $0.14 per diluted share, of after-tax unrealized gains related to certain interest rate swaps at GATX’s European Rail affiliate, AAE Cargo A.G. (“AAE”). First quarter 2010 results include $0.8 million, or $0.2 per diluted share, of after-tax unrealized losses related to the interest rate swaps at AAE.

     Total investment volume was $96.2 million for the first three months of 2011 compared to $70.2 million for the first three months of 2010.

     The following table presents a financial summary of GATX’s operating segments (in millions, except per share data):

		Three Months Ended
		March 31
		2011				2010
Gross Income
Rail		$	243.9			$	245.3
Specialty			25.9				27.1
ASC			12.1				9.3
Total segment gross income			281.9				281.7
Other			0.2				0.2
Consolidated Gross Income		$	282.1			$	281.9
Segment Profit
Rail		$	51.6			$	49.3
Specialty			10.7				12.1
ASC			0.8				0.4
Total Segment Profit			63.1				61.8
Less:
Selling, general and administrative expenses			36.4				33.5
Unallocated interest expense, net			1.1				2.0
Other income and expense, including eliminations			(0.2	)			—
Income taxes			5.9				7.6
Consolidated Net Income		$	19.9			$	18.7
Basic earnings per share		$	0.43			$	0.41
Diluted earnings per share		$	0.42			$	0.40

Return on Equity

     The following table presents GATX’s return on equity (“ROE”) for the trailing twelve months ended March 31:

		2011				2010
ROE			7.3	%			6.7	%
ROE, excluding tax benefits and other items			6.1	%			6.9	%

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 and GATX’s share of affiliates’ earnings attributable to the segments as well as ownership and operating costs that management believes are directly associated with the maintenance or operation of the revenue earning assets. Operating costs include maintenance costs, marine operating costs, and other operating costs such as litigation, asset impairment charges, provisions for losses, environmental costs and asset storage costs. Segment profit excludes selling, general and administrative expenses, income taxes and certain other amounts not allocated to the segments. These amounts are discussed below 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, Specialty and ASC are set at 4:1, 3:1 and 1.5:1, 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

     Market fundamentals continued to improve in the first quarter of 2011 as U.S. carloadings increased, idle railcars declined, and lease rate pricing improved. Rail’s utilization in North America increased to 97.8% compared to 97.4% at the end of 2010 and 96.0% at March 31, 2010. Lease rates on renewals and assignments during the quarter were slightly lower than the expiring rates; however, the rate of decline was substantially reduced compared to recent experience. The average lease renewal rate on cars in the GATX Lease Price Index (the “LPI”, see definition below) decreased 0.5% from the average expiring lease rate in the current quarter, compared to decreases of 14.0% for the fourth quarter of 2010 and 15.2% for the first quarter of 2010. Rail entered 2011 with approximately 21,000 cars on leases scheduled to expire during the year, of which approximately 4,200 occurred in the current quarter. Lease terms on renewals for cars in the LPI averaged 41 months in the current quarter, compared to 36 months for the fourth quarter of 2010 and 31 months in the first quarter of 2010. Rail’s commercial team is focused on lease pricing improvement in this recovering market. In Europe, Rail’s wholly-owned tank car fleet has increased due to investments in new cars and there have been modest improvements in lease pricing. Fleet utilization increased slightly to 95.8% compared to 95.7% at the end of 2010 and 94.4% at March 31, 2010. AAE, which serves the freight railcar markets, is beginning to experience some improvement in its markets and fleet utilization is increasing. During the first three months of 2011, Rail’s investment volume was $53.9 million, compared to $48.1 million in 2010. In March 2011, GATX entered into an agreement to acquire 12,500 newly built railcars that are expected to deliver ratably over a five-year period.

     Components of Rail’s operating results are outlined below (in millions):

		Three Months Ended
		March 31
		2011				2010
Gross Income
Lease income		$	209.4			$	204.9
Asset remarketing income			7.6				12.5
Other income			19.8				19.3
Revenues			236.8				236.7
Affiliate earnings			7.1				8.6
			243.9				245.3
Ownership Costs
Depreciation			47.9				47.6
Interest expense, net			32.7				31.7
Operating lease expense			34.4				34.4
			115.0				113.7
Other Costs and Expenses
Maintenance expense			68.9				67.4
Other costs			8.4				14.9
			77.3				82.3
Segment Profit		$	51.6			$	49.3

GATX Lease Price Index

     The GATX Lease Price Index is an internally generated business indicator that measures general lease rate pricing on renewals within Rail’s North American fleet. The index reflects the weighted average lease rate for a select group of railcar types that Rail believes to be representative of its overall North American 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.

Rail’s Fleet Data

     The following table summarizes certain fleet data for Rail’s North American railcars for the quarters indicated:

		March 31				June 30				September 30				December 31				March 31
		2010				2010				2010				2010				2011
Beginning balance			110,870				108,918				108,626				108,800				111,389
Cars added			346				434				1,189				3,479				175
Cars scrapped			(1,026	)			(726	)			(917	)			(870	)			(963	)
Cars sold			(1,272	)			—				(98	)			(20	)			(821	)
Ending balance			108,918				108,626				108,800				111,389				109,780
Utilization rate at quarter end			96.0	%			96.5	%			96.8	%			97.4	%			97.8	%
Average active railcars			105,461				104,530				104,611				106,732				108,061

     The following table summarizes certain fleet data for Rail’s European railcars for the quarters indicated:

		March 31				June 30				September 30				December 31				March 31
		2010				2010				2010				2010				2011
Beginning balance			20,033				20,321				20,302				20,226				20,432
Cars added			288				15				61				298				109
Cars scrapped or sold			—				(34	)			(137	)			(92	)			(17	)
Ending balance			20,321				20,302				20,226				20,432				20,524
Utilization rate at quarter end			94.4	%			94.4	%			95.3	%			95.7	%			95.8	%
Average active railcars			19,117				19,198				19,223				19,430				19,596

     The following table summarizes certain fleet data for Rail’s North American locomotives for the quarters indicated:

		March 31				June 30				September 30				December 31				March 31
		2010				2010				2010				2010				2011
Beginning balance			529				535				536				542				550
Locomotives added			6				1				6				8				10
Ending balance			535				536				542				550				560
Utilization rate at quarter end			90.3	%			98.1	%			98.7	%			97.6	%			97.7	%
Average active locomotives			479				517				531				536				541

Rail’s Lease Income

     Components of Rail’s lease income are outlined below (in millions):

		Three Months Ended
		March 31
		2011				2010
North American railcars		$	162.0			$	160.6
European railcars			38.6				36.3
Locomotives			8.8				8.0
		$	209.4			$	204.9

Comparison of the First Three Months of 2011 to the First Three Months of 2010

Segment Profit

     Rail’s segment profit for the first three months of 2011 reflects unrealized gains of $7.2 million representing the change in the fair value of certain interest rate swaps at AAE, while segment profit for the first three months of 2010 reflects unrealized losses of $0.9 million related to the interest rate swaps. Excluding the effect of these items from each period, Rail’s segment profit decreased $5.8 million, primarily due to lower asset remarketing income, lower affiliate earnings, and the absence of end-of-lease settlements received in the prior year, partially offset by higher North American lease income and scrapping gains, and the absence of a prior year asset impairment charge.

Gross Income

     Lease income in North America increased $2.2 million, primarily due to an average of 2,600 more cars and 62 more locomotives on lease, partially offset by lower lease rates compared to the prior year. In Europe, a $2.3 million increase in lease income was driven primarily by an average of approximately 500 more cars on lease and higher lease rates. Asset remarketing income decreased $4.9 million due to fewer railcar sales in the current year. Other income was $0.5 million higher, primarily due to more scrapped cars at higher scrap rates largely offset by the absence of income from end-of-lease settlements received in the prior year. Affiliates’ earnings declined $1.5 million from the prior year. Excluding the impact of the aforementioned interest rate swaps at AAE from the current and prior years, affiliates’ earnings declined $9.6 million, primarily due to the combination of a current year charge related to a bankrupt customer at AAE and the absence of a prior year asset remarketing gain at another affiliate.

     AAE holds multiple derivative instruments intended to hedge interest rate risk associated with forecasted floating rate debt issuances. These instruments do not qualify for hedge accounting and as a result, changes in their fair values are recognized currently in income. The unrealized gains and losses were primarily driven by changes in the underlying benchmark interest rates. AAE’s earnings may be impacted by future unrealized gains or losses associated with these instruments.

Ownership Costs

     Ownership costs were comparable to the prior year.

Other Costs and Expenses

     In North America, maintenance costs increased by $2.9 million, primarily due to higher railroad repair volumes and higher per car repair costs. In Europe, maintenance costs were $1.4 million lower, primarily due to the timing of the capitalization of new wheelsets in the prior year in connection with the wheelset replacement program at GATX’s European rail operations, partially offset by a higher volume of underframe revisions in the current year.

     Other costs in 2011 were $6.5 million lower than the prior year, primarily due to lower asset impairment charges, storage and switching fees, and net remeasurement gains on non-functional currency assets and liabilities in the current year compared to net losses in the prior year. Asset impairment charges of $0.6 million in the current year related to wheelsets scrapped in Europe in connection with the wheelset replacement program, while charges of $4.8 million in the prior year were attributable to an Association of American Railroads industry-wide regulatory mandate that resulted in a significant decrease to the expected economic life of 358 GATX aluminum hopper railcars.

Specialty

     Specialty’s total asset base, including off balance sheet assets, was $763.6 million at March 31, 2011, compared to $744.4 million at December 31, 2010, and $694.6 million at March 31, 2010. Investment volume was $36.4 million in the first three months of 2011 compared to $19.6 million in the prior year period. Investments in 2011 primarily consisted of $17.2 million in existing affiliates, $10.0 million in equipment and a $9.1 senior secured loan. Specialty continues to evaluate investment opportunities in a disciplined manner, focusing on targeted asset types, asset cost and appropriate risk adjusted returns. Marine affiliate market conditions remain under pressure due to a combination of inconsistent demand for marine transport services and vessel overcapacity in these markets. Specialty’s aircraft engine leasing affiliate continues to produce positive operating results.

     Components of Specialty’s operating results are outlined below (in millions):

		Three Months Ended
		March 31
		2011				2010
Gross Income
Lease income		$	14.4			$	15.3
Asset remarketing income			1.3				1.9
Other income			0.2				0.2
Revenues			15.9				17.4
Affiliate earnings			10.0				9.7
			25.9				27.1
Ownership Costs
Depreciation			4.4				4.1
Interest expense, net			7.1				6.8
Operating lease expense			0.3				0.3
			11.8				11.2
Other Costs and Expenses			3.4				3.8
Segment Profit		$	10.7			$	12.1

Specialty’s Portfolio Data

     The following table summarizes information on the owned and managed Specialty portfolio (in millions):

		March 31				June 30				September 30				December 31				March 31
		2010				2010				2010				2010				2011
Net book value of owned assets (a)		$	694.6			$	699.4			$	721.7			$	744.4			$	763.6
Net book value of managed portfolio		$	249.9			$	239.9			$	237.9			$	234.5			$	226.7

Comparison of the First Three Months of 2011 to the First Three Months of 2010

Segment Profit

     Specialty’s segment profit for the first three months of 2011 was $1.4 million lower than the prior year, primarily due to lower lease and asset remarketing income.

Gross Income

     Lease income was $0.9 million lower than the prior year, primarily due to lower pooled barge income partially offset by income from new leases. Asset remarketing income was $0.6 million lower than the prior year due to reduced remarketing activity. Affiliates’ earnings increased $0.3 million, primarily due to an affiliate asset remarketing gain on the sale of a vessel, largely offset by an adjustment attributable to an accounting change for residual value guarantees.

Ownership Costs

     Ownership costs were $0.6 million higher than the prior year, primarily due to depreciation and interest expenses on new investments.

Other Costs and Expenses

     Other costs and expenses decreased $0.4 million, primarily due to lower operating costs for pooled barges partially offset by the absence of a bad debt recovery received in the prior year.

ASC

     ASC entered 2011 anticipating continued improvement in steel production, which is expected to result in marginally higher tonnage volumes compared to prior year. As of April 27, 2011, ASC had deployed 8 vessels. Discussions with customers regarding freight volume requirements for 2011 are still in progress. As a result, ASC will continue to actively manage its fleet and deploy vessels in a disciplined manner.

     ASC’s fleet is largely inactive for the first three months of each year due to the winter conditions on the Great Lakes and first quarter freight volume is largely attributable to prior year volume requirements completed in January. During the first three months of 2011, ASC’s freight volume of 1.2 million net tons was comparable to the prior year.

     Components of ASC’s operating results are outlined below (in millions):

		Three Months Ended
		March 31
		2011				2010
Gross Income
Marine operating revenues		$	11.1			$	8.3
Lease income			1.0				1.0
			12.1				9.3
Ownership Costs
Depreciation			—				—
Interest expense, net			2.0				2.1
			2.0				2.1
Other Costs and Expenses
Maintenance expense			0.4				0.4
Marine operating expense.			8.9				6.4
			9.3				6.8
Segment Profit		$	0.8			$	0.4

Comparison of the First Three Months of 2011 to the First Three Months of 2010

Segment Profit

     ASC’s segment profit for the first three months of 2011 was $0.4 million higher than the prior year, primarily due to the mix of freight volume as more iron ore was shipped in the current year.

Gross Income

     Gross income increased $2.8 million, primarily due to the mix of freight volume and higher fuel surcharges, which were offset by higher operating expenses.

Ownership Costs

     Ownership costs were comparable between the two periods.

Other Costs and Expenses

     Maintenance costs were comparable between the two periods. Marine operating expenses increased $2.5 million, primarily due to increased fuel costs.

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):

		Three Months Ended
		March 31
		2011				2010
Selling, general and administrative expenses		$	36.4			$	33.5
Unallocated interest expense, net			1.1				2.0
Other income and expense, including eliminations			(0.2	)			—
Income taxes			5.9				7.6

     SG&A for the first three months of 2011 was $2.9 million higher than the prior year, primarily due to higher compensation expenses. Unallocated interest expense (the difference between external interest expense and amounts allocated to the reporting segments in accordance with assigned leverage targets) was $0.9 million lower than the prior year, primarily due to the timing of debt issuances and investment spending in each year. Other income and expense for the first three months of 2011 and 2010 was immaterial.

Income Taxes

     GATX’s effective tax rate was 23% for the three months ended March 31, 2011, compared to 29% for the three months ended March 31, 2010. The difference in GATX’s effective tax rate was largely driven by variability in the mix of pre-tax income, including share of affiliates’ earnings, among domestic and foreign jurisdictions, which are taxed at different rates.

     As of March 31, 2011, GATX’s gross liability for unrecognized tax benefits totaled $43.0 million, which, if fully recognized, would decrease income tax expense by $23.3 million ($21.2 million net of federal tax).

Cash Flow and Liquidity

     GATX generates a significant amount of cash from its operating activities and proceeds from its investment portfolio, which is used to service debt, pay dividends, and fund portfolio investments and capital additions. 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 March 31, 2011, GATX had unrestricted cash balances of $53.9 million.

     The following table sets forth GATX’s principal sources and uses of cash for the three months ended March 31 (in millions):

		2011				2010
Principal sources of cash
Net cash provided by (used in) operating activities		$	36.8			$	(0.3	)
Portfolio proceeds			43.5				30.8
Other asset sales			11.3				7.0
Proceeds from issuance of debt, commercial paper and credit facilities			58.4				232.2
		$	150.0			$	269.7
Principal uses of cash
Portfolio investments and capital additions		$	(96.2	)		$	(70.2	)
Repayments of debt, commercial paper and credit facilities			(26.8	)			(51.9	)
Purchases of leased-in assets			(37.7	)			—
Payments on capital lease obligations			(1.4	)			(1.4	)
Cash dividends			(14.5	)			(13.9	)
		$	(176.6	)		$	(137.4	)

     Net cash provided by operating activities for the first three months of 2011 was $36.8 million, an increase of $37.1 million from the prior year. The increase was primarily driven by higher lease income and refunds for income and value added taxes in the current year compared to payments in the prior year, partially offset by lower dividends from affiliates in the current year. The prior year also included a $13.1 million adjustment to cash from operations resulting from the correction of the overstatement of cash and cash equivalents at December 31, 2009.

     Portfolio investments and capital additions for the first three months of 2011 totaled $96.2 million, an increase of $26.0 million from the prior year. Rail and Specialty investments in 2011 were $53.9 million and $36.4 million, respectively, compared to $48.1 million and $19.6 million, respectively, in 2010.

     Portfolio proceeds for the first three months of 2011 of $43.5 million increased by $12.7 million from the prior year, primarily due to higher proceeds from sales of equipment and finance lease principal receipts. Proceeds from sales of other assets of $11.3 million for the first three months of 2011 increased by $4.3 million from the prior year and primarily consisted of cash received from the scrapping of railcars.

     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.

     Proceeds from the issuance of debt for the first three months of 2011 were $58.4 million (net of hedges and debt issuance costs). Debt repayments of $26.8 million for the first three months of 2011 consisted of scheduled debt maturities.

Short-Term Borrowings

     The following table provides certain information regarding GATX’s short-term borrowings for the quarter ended March 31, 2011:

		North
		America (a)				Europe (a)
Balance as of March 31 (in millions)		$	133.7			$	42.1
Weighted average interest rate			0.4	%			2.8	%
Euro/Dollar exchange rate			n/a				1.4158
Average monthly amount outstanding (in millions)		$	105.1			$	32.6
Weighted average interest rate			0.4	%			2.8	%
Average Euro/Dollar exchange rate			n/a				1.3685
Maximum month-end amount outstanding (in millions)		$	133.7			$	42.1
Euro/Dollar exchange rate			n/a				1.4158