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

For the quarterly period ended March 31, 2009

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)

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 o 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).

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, 2009, 47.2 million common shares were outstanding.

 

 

GATX CORPORATION
FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2009

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			14
		Business Overview			14
		Discussion of Operating Results			15
		Segment Operations			16
		Cash Flow and Liquidity			21
		Critical Accounting Policies			22
		Non-GAAP Financial Information			22
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			23
Item 4.		Controls and Procedures			23
		Part II — OTHER INFORMATION
Item 1.		Legal Proceedings			23
Item 1A.		Risk Factors			23
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			24
Item 4.		Submission of Matters to a Vote of Security Holders			24
Item 6.		Exhibits			25
SIGNATURE					26
EXHIBIT INDEX					27
EX-10.2
EX-10.3
EX-10.4
EX-31A
EX-31B
EX-32

PART I — FINANCIAL INFORMATION

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

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 (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2009, are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2009. 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 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, 2008, as set forth in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”).

Accounting Changes

     On January 1, 2009, GATX adopted the provisions of Financial Accounting Standards Board (“FASB”) Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”), for its 5% convertible notes due 2023 (“2003 Notes”). FSP APB 14-1 amends the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion and requires issuers of such convertible debt instruments to account separately for the liability (debt) and equity (conversion option) components in a manner that reflects the issuer’s nonconvertible debt borrowing rate. FSP APB 14-1 requires bifurcation of a component of the convertible debt, classification of that component as equity, and then amortization of the resulting discount on the debt as additional interest expense over the expected term of the debt. See Note 11 for additional details.

     GATX applied the provisions of FSP APB 14-1 on a retrospective basis for all periods presented. The effects of the application on GATX’s previously issued financial statements were as follows ($ in millions, except per share amounts):

     In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), Business Combinations (“SFAS 141(R)”). SFAS 141(R) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree at the acquisition date, measured at their fair values as of that date; the immediate expense recognition of transaction costs; and the accounting for restructuring costs separately from the business combination. This Statement also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values. SFAS 141(R) became effective for GATX as of January 1, 2009 and had no impact on its consolidated financial position, results of operations or cash flows.

     GATX adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS 160”), as of January 1, 2009. SFAS 160 requires entities to report noncontrolling (minority) interests of consolidated subsidiaries as a component of shareholders’ equity on the balance sheet, include all earnings of a consolidated subsidiary in consolidated results of operations, and treat all transactions between an entity and the noncontrolling interest as equity transactions between the parties. GATX does not consolidate any partially owned subsidiaries and therefore the application of this standard had no impact on its consolidated financial position, results of operations or cash flows.

     In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”), which requires enhanced disclosures about a company’s use of derivative instruments, its applicable accounting policies related to derivatives, and the effect of those derivatives on its financial position, results of operations and cash flows. GATX adopted the provisions of SFAS 161 as of January 1, 2009. The application of SFAS 161 had no impact on GATX’s financial position, results of operations or cash flows. See Note 4 for additional details.

New Accounting Pronouncements

     In April 2009, the FASB issued three FASB Staff Positions (“FSP”), (collectively the “FSPs”) that provide additional guidance and require enhanced disclosures regarding certain fair value measurements. FSP FAS No. 157-4, Determining Fair Value when the Volume and Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP FAS 157-4”), provides guidance for determining fair values when markets become inactive and for identifying distressed transactions. FSP FAS No. 115-2 and FSP FAS 124-2, Recognition and Presentation of Other-than-Temporary Impairments (“FSP FAS 115-2”), amends the guidance for determining whether debt securities are other-than-temporarily impaired and requires enhanced presentation and disclosure of other-than-temporary impairments on debt and equity securities in a company’s financial statements. FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP FAS 107-1”), requires disclosures about the fair values of financial instruments in interim and annual financial statements. The FSPs are effective for interim and annual reporting periods ending after June 15, 2009. GATX expects to apply the provisions of the FSPs for the period ending June 30, 2009, and does not expect their application to have a material impact to its consolidated financial position, results of operations or cash flows.

Derivative instruments

     GATX enters into derivative transactions for purposes of hedging specific financial exposures, primarily movements in foreign currency exchange rates and changes in benchmark interest rates. GATX does not hold or issue derivative financial instruments for purposes other than hedging, except for warrants, which are held for investment purposes and are not hedges. Certain derivatives may not meet the established criteria to be designated as qualifying accounting hedges, even though GATX believes they are effective economic hedges. For the three months ended March 31, 2009 and 2008, amounts recognized in earnings for derivatives that did not qualify as accounting hedges were immaterial.

      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 attributable to the hedged risk are recognized in earnings as interest expense. As of March 31, 2009, maturities for fair value hedges range from 2009-2015.

      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, 2009, maturities for qualifying cash flow hedges ranged from 2009-2015. Within the next 12 months, GATX expects to reclassify $2.8 million ($1.7 million after tax) of net losses on cash flow hedges from accumulated other comprehensive loss to earnings as interest expense related to the hedged risks affect earnings. Changes in the fair value of the ineffective portion of cash flow hedges are immediately recognized in earnings. For the three months ended March 31, 2009 and 2008, amounts recognized in earnings for ineffectiveness were immaterial.

     GATX’s derivative instruments contain credit risk provisions that could require GATX to make immediate payment on derivative instruments in net liability positions in the event that GATX defaulted on a certain portion of its 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, 2009, was $24.3 million. GATX is not required to post any collateral on its derivative instruments and does not expect the credit risk provisions to be triggered.

     See Note 3 of GATX’s Annual Report on Form 10-K for the year ended December 31, 2008, for GATX’s accounting policy with respect to derivatives.

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 sets forth GATX’s commercial commitments as of (in millions):

     Affiliate guarantees generally involve guaranteeing repayment of the financing utilized by an affiliate to acquire or lease-in assets, which are subsequently leased-out to third parties, and are in lieu of making direct equity investments in the affiliate. GATX is not aware of any event of default which 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. Revenue is earned for providing these guarantees in the form of an initial fee (which is amortized into income over the guarantee period) and by sharing in any proceeds received upon disposition of the assets to the extent such proceeds are in excess of the amount guaranteed (which is recognized when realized). Any liability resulting

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

from GATX’s performance pursuant to these guarantees will be reduced by the value realized from the underlying asset or group of assets. Historically, gains associated with the settlement of residual value guarantees have exceeded any losses and were recorded in asset remarketing income in the consolidated statements of operations. Based on known facts and current market conditions, management does not believe that the asset residual value guarantees will result in any significant adverse financial impact to the Company. GATX believes these asset residual value guarantees will likely generate future income in the form of fees and residual sharing proceeds.

     Lease payment guarantees represent GATX’s guarantees to financial institutions of finance and operating lease payments of unrelated parties in exchange for a fee.

     Other consists of GATX’s potential reimbursement obligation to Airbus S.A.S. (“Airbus”) for amounts Airbus may be required to pay under certain specified circumstances to GATX Flightlease Aircraft Ltd. (“GFAC”), a joint venture partially owned by GATX, in connection with an aircraft purchase contract entered into by GFAC and Airbus in 2001. GATX’s potential reimbursement obligation is capped at $77.8 million. No liability has been recorded with respect to this potential reimbursement as GATX believes that the likelihood of any required payment is remote.

     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, 2009, management does not expect any material losses to result from these off balance sheet instruments since performance is not expected to be required.

NOTE 6. Variable Interest Entities

     GATX has investments that are considered VIEs in accordance with FIN 46(R). GATX determines whether an entity is a VIE based on the sufficiency of the entity’s equity and the correlation between economic and voting rights of the entity’s investors. The determination of whether GATX is the primary beneficiary of a VIE is based on an analysis of the variable interests held by GATX and the level to which those variable interests will absorb expected losses or receive the expected residual returns in 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’s investments in VIEs primarily consist of leveraged leases and certain investments in affiliates that were acquired or entered into between 1994 and 2002. These VIEs are involved in railcar and equipment leasing activities and are typically financed through a mix of equity investments, debt from equity investors and third party lending arrangements. GATX determined that it is not the primary beneficiary of these VIEs because it does not absorb the majority of expected losses or receive the majority of expected residual returns associated with them. As a result, GATX does not consolidate these VIEs. GATX continues to evaluate new investments for the application of FIN 46(R) and regularly reviews all existing entities in connection with any reconsideration events (as defined in FIN 46(R)) that may result in an entity becoming a VIE or in GATX becoming the primary beneficiary of an existing VIE.

     At March 31, 2009, the carrying amount and maximum exposure to loss with respect to GATX’s VIEs was as follows (in millions):

NOTE 9. Income Taxes

     GATX’s effective tax rate was 30% for the three months ended March 31, 2009, compared to 22% for the three months ended March 31, 2008. In 2008, the statute of limitations on a state income tax position taken in a prior period expired, resulting in the recognition of previously unrecognized tax benefits of $6.8 million. In the current year, a change in the functional currency tax election of a foreign wholly-owned subsidiary resulted in the recognition of a $2.4 million deferred tax benefit. Excluding the effect of the tax benefits from each year, GATX’s effective tax rate for the first three months of 2009 and 2008 was 36% and 33% respectively.

     As of March 31, 2009, GATX’s gross liability for unrecognized tax benefits totaled $53.5 million, which, if fully recognized, would decrease income tax expense by $36.3 million ($34.2 million net of federal tax).

NOTE 11. Convertible Debt

     In August 2003, GATX issued $125.0 million, 5.0% senior unsecured notes, due in August 2023 (the “2003 Notes”). The 2003 Notes are contingently convertible into GATX common stock upon the resolution of any of five contingencies, as described in Note 13 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. In accordance with FSP APB 14-1, at the time of issuance, GATX separated the convertible notes into liability and equity components based on the fair value of the liability component. The resulting debt discount was amortized over five years and was fully amortized by August 2008. For the three months ended March 31, 2008, $1.9 million of interest expense was recorded, resulting in an effective interest rate of approximately 7.3%.

     The following table sets forth certain information relating to the 2003 Notes as of:

NOTE 12. Capital Structure and Earnings per Share

     On January 23, 2008, the Company’s Board of Directors authorized a $200 million share repurchase program. As of March 31, 2009, 3.8 million shares have been repurchased for $106.7 million. The repurchased shares were recorded as treasury stock under the cost method.

     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 the impact of potentially dilutive securities, including, convertible preferred stock, stock options, SARs, restricted stock and convertible debt.

NOTE 13. 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 Part I, Item 3, Legal Proceedings of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. Except as noted below, there have been no material changes or developments in these matters.

Flightlease Litigation

     In 1999, GATX Third Aircraft Corporation (“Third Aircraft”), an indirect wholly-owned subsidiary of GATX Financial Corporation (“GFC”, which merged into GATX in 2007), entered into a joint venture agreement with Flightlease Holdings (Guernsey) Ltd. (“FHG”), an indirect wholly-owned subsidiary of the SAirGroup, and formed a joint venture entity, GATX Flightlease Aircraft Ltd. (“GFAC”) to purchase a number of aircraft. In September 1999, GFAC entered into an agreement (the “GFAC Agreement”) with Airbus S.A.S. (“Airbus”) and by October 1, 2001, GFAC had ordered a total of 41 aircraft (the “GFAC Aircraft”) from Airbus and had made aggregate unutilized pre-delivery payments (“PDPs”) to Airbus of approximately $227.6 million. Subsequently, on October 4, 2001, the joint venture partners entered into an agreement (the “Split Agreement”) pursuant to which the parties agreed (i) to divide responsibility for the GFAC Aircraft, (ii) to allocate the PDPs between them in the amounts of approximately $77.8 million to Third Aircraft and approximately $149.8 million to FHG, and (iii) that each would enter into separate agreements with Airbus to purchase its allocated aircraft or equivalent aircraft (such aircraft allocated to Third Aircraft being the “GATX Allocated Aircraft”). Subsequently, GFC and an affiliate of Airbus entered into a new purchase agreement for the GATX Allocated Aircraft (the “GATX Agreement”) and GFC received a credit of $77.8 million of the PDPs towards the acquisition of the aircraft. In connection with the GATX Agreement, GFC agreed that in certain specified circumstances it would pay to Airbus any amount up to $77.8 million which Airbus is required to pay to GFAC in reimbursement of PDPs paid by GFAC with respect to the GATX Allocated Aircraft (such agreement being the “Reimbursement Agreement”). Under the Split Agreement, FHG was to take the benefit of the remaining PDPs allocated to it (approximately $149.8 million) and enter into a new contract with Airbus but, following SAirGroup’s bankruptcy, FHG did not enter into such a contract, and Airbus then declared GFAC in default and retained the approximately $149.8 million in PDPs held by it as damages.

     On October 10, 2005, GFAC filed a complaint in the Supreme Court of the State and County of New York against Airbus

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

alleging that Airbus’ termination of the GFAC Agreement was wrongful and seeking restitution and damages in an unspecified amount in the “millions of dollars.” On December 7, 2005, FHG, acting by its liquidators (the “FHG Liquidators”), filed a motion to intervene and an accompanying complaint, which was granted on February 16, 2006 (the “Airbus Action”).

     On October 14, 2005, the FHG Liquidators filed a complaint in the United States District Court for the Northern District of California, purportedly as a derivative complaint on behalf of GFAC, against GFC, Third Aircraft, and Mr. James H. Morris and Mr. Alan M. Reinke, then officers of a division of GFC (the “FHG Action”). The complaint alleged that Messrs. Morris and Reinke, as directors of GFAC, breached their fiduciary duties and that GFC and Third Aircraft knowingly assisted such breaches, thereby depriving GFAC of assets. The complaint seeks damages in an amount including, but not necessarily limited to, approximately $227.6 million. In certain specified circumstances, Messrs. Morris and Reinke are indemnified against losses they suffer or incur as a result of their service as GFAC directors. The Company believes there is no valid basis for any claim made by the FHG Liquidators in the complaint against GFC, Third Aircraft, and/or Messrs. Morris and Reinke.

     The parties to the FHG Action entered into a Tolling and Standstill Agreement (the “Tolling Agreement”) in October of 2006 which, among other things, provides for a standstill of claims or potential claims until the conclusion of the Airbus Action described above. The Tolling Agreement does not resolve the merits or liability for (or against) any claims nor require payment of any monetary damages by any party to another party.

     On February 6, 2009, the New York Court in the Airbus Action issued an opinion that granted the FHG Liquidators’ motion for summary judgment on liability, holding that Airbus’s termination of the GFAC Agreement was a breach of the agreement. Airbus subsequently filed a motion for reconsideration of the Court’s summary judgment ruling on liability, and the FHG Liquidators filed a motion for entry of judgment on damages for the full amount of the PDPs paid by GFAC plus interest. The Court has not yet issued a ruling on these cross motions.

     Should GFAC ultimately succeed in recovering from Airbus those PDPs with respect to the GATX Allocated Aircraft, Airbus may attempt to seek from GATX, as a successor in interest to GFC, payment under the Reimbursement Agreement in an amount equal to the lesser of (x) the amount so recovered or (y) approximately $77.8 million. In light of the New York Court’s February 6, 2009, decision that Airbus breached the GFAC Agreement and other relevant facts, the Company believes that it does not have an obligation to make such a payment to Airbus under the Reimbursement Agreement. Further, the Company believes that its subsidiary, Third Aircraft, may be entitled to an appropriate portion of any ultimate recovery by the joint venture.

     The Company believes that the likelihood of loss with respect to these matters is remote and as a result has not recorded any accrual as of March 31, 2009. While it is reasonably possible that the Company may ultimately incur a loss in these matters, at this time an estimate of the amount of such loss cannot be made.

NOTE 14. Financial Data of Business Segments

     The financial data presented below conforms to SFAS No. 131 , Disclosures about Segments of an Enterprise and Related Information , and depicts the profitability, financial position and capital expenditures of each of GATX’s continuing 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 leases tank cars, freight cars and locomotives in North America and Europe. Rail 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. 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.

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

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

     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 affiliate earnings, attributable to the segments, as well as ownership and other costs that management believes are directly associated with the maintenance or operation of the revenue earning assets. Other costs include maintenance costs, marine operating costs, asset impairment charges and other costs such as litigation, 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 an appropriate risk-adjusted cost of capital.

     The following tables present certain segment data for the three months ended March 31, 2009 and 2008 (in millions):

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 and other filings with the 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 asset segments; conditions in the capital markets; changes in GATX’s credit ratings; regulatory rulings that may impact the economic value and operating costs of assets; competitive factors in GATX’s primary markets including lease pricing and asset availability; 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; the outcome of pending or threatened litigation; and other factors. 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 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, 2009, are not necessarily indicative of the results that may be achieved for the entire year ending December 31, 2009. For further information, refer to GATX’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (“SEC”), which contains the Company’s consolidated financial statements for the year ended December 31, 2008.

DISCUSSION OF OPERATING RESULTS

     Net income was $27.6 million or $.56 per diluted share for the first three months of 2009 compared to net income of $51.8 million or $1.03 per diluted share in the first quarter of 2008. The 2009 first quarter results include an after-tax unrealized loss of $11.6 million, representing the change in the fair value of certain interest rate swaps at GATX’s AAE Cargo affiliate, and the 2008 first quarter results include a $6.8 million after tax benefit from the reversal of tax reserves. Results for 2008 have been restated to reflect the adoption of FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) . See Note 2 to the consolidated financial statements for further information.

     Total investment volume was $79.3 million for the first three months of 2009 compared to $71.4 million for the first three months of 2008.

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

Return on Equity

     GATX’s return on equity (“ROE”) is based on net income and is shown for the trailing twelve months ended March 31:

		2009				2008
ROE			15.5	%			17.8	%

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, including affiliate earnings, attributable to the segments as well as ownership and other costs that management believes are directly associated with the maintenance or operation of the revenue earning assets. Other costs include maintenance costs, marine operating costs, asset impairment charges and other costs such as litigation, 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

Segment Summary

     In the current quarter, economic weakness in North America negatively impacted lease pricing and demand for railcars. After holding steady throughout 2008, North American fleet utilization decreased to 96.5% compared to 97.9% at the end of 2008. Lease end returns and returns related to customer bankruptcy filings contributed equally to this reduction. In addition, average lease renewal pricing on cars in the GATX Lease Price Index (the “LPI”) (see definition below) decreased 5.5% over the average expiring lease rates, compared to increases of 3.3% for the fourth quarter of 2008 and 11.6% for the first quarter of 2008. Lease terms on renewals for cars in the LPI averaged 45 months in the first quarter of 2009, compared to 65 months for the fourth quarter of 2008 and 65 months in the first quarter of 2008. In Europe, economic weakness is also having a negative impact on operations. Rail’s wholly-owned tank car fleet is performing relatively well due to a high concentration of cars deployed in the more stable petroleum market. Fleet utilization decreased modestly to 96.5% from 97.1% at the end of 2008 and customers renewed a majority of leases that expired in the first quarter of 2009. However, Rail’s AAE Cargo affiliate is experiencing substantial market pressure due to its concentration in freight cars, particularly intermodal cars. During the first three months of 2009, Rail’s investments, which consisted primarily of new railcars acquired pursuant to existing commitments, were $70.5 million compared to $54.5 million in 2008.

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

     The following table summarizes fleet activity for Rail’s wholly-owned European railcars:

Comparison of the First Three Months of 2009 to the First Three Months of 2008

Segment Profit

     Rail’s segment profit for the first three months of 2009 was significantly impacted by a $14.3 million unrealized loss representing the change in the fair value of certain interest rate swaps at its AAE Cargo affiliate. Excluding the unrealized loss, Rail’s segment profit decreased $16.4 million from 2008, primarily due to lower asset remarketing income and scrapping gains.

Gross Income

     Lease income in North America increased $3.0 million, primarily the result of an average of over 1,000 more cars on lease, largely due to the Allco fleet acquisition completed at the end of 2008. In Europe, lease income decreased $5.5 million due to weaker foreign exchange rates, partially offset by an average of over 220 more cars on lease. Asset remarketing income decreased $6.3 million as the current year included a $4.0 million residual sharing fee while the prior year included the disposition of nearly 1,400 railcars. Other income was lower in 2009 primarily due to lower scrap income. Affiliate earnings in 2009 were lower due to the $14.3 million unrealized loss at AAE. Excluding the unrealized loss, 2009 affiliate earnings were comparable to 2008. However, pressures in the European freight car market are intense, particularly in intermodal cars where AAE has substantial exposure. It is likely that AAE’s operating performance will be under increasing stress as 2009 progresses.

     AAE holds multiple derivative instruments to hedge interest rate risk associated with forecasted floating rate debt issuances related to future new car orders. These instruments do not qualify for hedge accounting based on their applicable terms and as a result, changes in their fair values are recognized currently in income. The unrealized loss recognized in 2009 was primarily driven by the significant decline in benchmark interest rates. AAE’s earnings may be impacted by future unrealized gains or losses associated with these instruments.

Ownership Costs

     Ownership costs for the first three months of 2009 increased $1.5 million, primarily due to interest associated with investment volume of $603.4 million over the last 12 months. The mix of ownership costs was impacted by the purchase of $70.1 million of previously leased in assets in 2008.

Other Costs and Expenses

     Maintenance expenses for the first three months of 2009 increased $1.0 million, primarily the result of higher car volumes and increased repairs performed by railroads, partially offset by the effect of foreign exchange rates. In North America, maintenance costs were $4.8 million higher largely due to an increase in the number of wheelset replacements performed by railroads and higher car volumes. In Europe, maintenance costs decreased $3.8 million primarily due to weakening foreign currencies.

Specialty

Segment Summary

     Specialty’s total asset base, including off balance sheet assets, was $641.3 million at March 31, 2009, compared to $654.4 million at December 31, 2008, and $521.5 million at March 31, 2008. Capital market volatility continues to create investment uncertainty for Specialty’s industrial equipment customers, which has resulted in limited investment opportunities in 2009. Specialty continues to pursue investment opportunities; however, realization of these opportunities will be dependent on a number of factors, including market conditions and expected returns.

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

Comparison of the First Three Months of 2009 to the First Three Months of 2008

Segment Profit

     Specialty’s segment profit for the first three months of 2009 was $7.0 million lower than the prior year, primarily due to lower marine affiliate earnings.

Gross Income

     Lease income was $1.1 million higher than the prior year, primarily due to income from investments in operating lease assets made in 2008. Share of affiliate earnings decreased $6.0 million from the prior year, primarily due lower charter rates achieved by marine vessels as a result of the slowdown in the global economy.

Ownership Costs

     Ownership costs were $2.5 million higher than the prior year, primarily due to an increase in interest and depreciation expense related to operating lease assets acquired in 2008.

Other Costs and Expenses

     The decrease in other costs and expenses in 2009 was primarily due to a $0.7 million favorable difference in the fair value adjustment for warrants and lower costs for pooled barges.

ASC

Segment Summary

     The Great Lakes transportation market is severely depressed, primarily due to the downturn in the steel industry. In response, ASC’s customers have significantly reduced anticipated freight volume requirements for 2009. As a result, ASC will actively manage the fleet and deploy vessels to efficiently meet customer requirements.

     ASC’s fleet is largely inactive for the first three months of each year due to the winter conditions on the Great Lakes. In the first three months of 2008, ASC carried 2.2 million net tons of freight, largely due to prior year volume requirements completed in January. In 2009, ASC carried only 0.2 million net tons, reflective of market conditions.

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

Comparison of the First Three Months of 2009 to the First Three Months of 2008

Segment Profit

     ASC’s segment profit of $4.8 million was $4.1 million higher than prior year. The favorable variance was primarily due to receipt of a litigation settlement, partially offset by lower income due to significantly lower freight volume in 2009.

Gross Income

     Gross income for the first three months of 2009 decreased $13.0 million from the prior year. The decrease was primarily due to significantly lower freight volume in 2009 compared to 2008.

Ownership Costs

     Ownership costs between the two periods were comparable.

Other Costs and Expenses

     Other costs and expenses for the first three months of 2009 decreased $16.9 million from the prior year. The variance was primarily due to substantially reduced shipping activity in 2009 compared to 2008 and the receipt of a $5.6 million litigation settlement.

Other

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

     Components of Other are outlined below (in millions):

SG&A, Unallocated Interest and Other

     SG&A was $5.5 million lower than the prior year, primarily due to lower compensation expense and weaker foreign exchange rates. Unallocated interest expense is the difference between actual external interest expense incurred (net of interest income earned on certain cash balances) and amounts allocated to the reporting segments in accordance with assigned leverage targets. Unallocated interest expense in 2009 was comparable to the prior year. Other income and expense in 2009 was $1.2 million favorable to the prior year, primarily due to a reduction of a non-income tax accrual.

Income Taxes

     GATX’s effective tax rate was 30% for the three months ended March 31, 2009, compared to 22% for the three months ended March 31, 2008. In 2008, the statute of limitations on a state income tax position taken in a prior period expired, resulting in the recognition of previously unrecognized tax benefits of $6.8 million. Additionally, in the current year, a change in the functional currency tax election of a foreign wholly-owned subsidiary resulted in the recognition of a $2.4 million deferred tax benefit. Excluding the effect of the tax benefits from both years, GATX’s effective tax rate was for the first three months of 2009 and 2008 was 36% and 33% respectively.

Cash Flow and Liquidity

     Over the course of a full year, GATX expects to generate significant cash flow from a combination of operating activities and investment portfolio proceeds. This cash flow is used to service debt, pay dividends, and fund portfolio investments and capital additions. Cash flow from operations and portfolio proceeds are impacted by changes in working capital and the timing of asset dispositions. As a result, cash flow components will vary quarter to quarter.

     Net cash provided by operating activities for the first three months of 2009 was $29.5 million, a decrease of $3.5 million from the prior year. The decrease was primarily due to changes in working capital. Cash flow tends to be lower in the first quarter relative to subsequent quarters due to the timing of certain payments.

     Portfolio investments and capital additions for the first three months of 2009 totaled $79.3 million, an increase of $7.9 million from the prior year. Rail investments in 2009 were $70.5 million, while Specialty investments were $4.2 million. The timing of investments is dependent on transaction opportunities and market conditions.

     Portfolio proceeds totaled $27.2 million for the first three months of 2009, a decrease of $38.9 million from the prior year. The decrease was primarily due to lower asset remarketing proceeds.

     Other proceeds of $32.6 million for the first three months of 2009 consisted of $27.3 million received from the partial liquidation of a money market fund investment and $5.3 million from the scrapping of railcars. Other proceeds for the first three months of 2008 consisted of $8.2 million from the scrapping of railcars.

     GATX also expects to meet debt, lease and dividend obligations through commercial paper issuances, committed revolving credit facilities and the issuance of secured and unsecured debt. GATX utilizes both domestic and international banks and capital markets.

     Debt repayments for the first three months of 2009 were $9.4 million, consisting of scheduled principal payments.

     In the first three months of 2009, 1.7 million shares of GATX common stock were repurchased for $30.2 million. In the first three months of 2008, 2.1 million shares were repurchased for $76.5 million. These purchases were made under the Company’s $200 million share repurchase program and as of March 31, 2009, $93.4 million of authorization remains.

     GATX has a $550 million unsecured revolving credit facility that matures in May 2012. As of March 31, 2009, availability under the facility was $422.5 million, with $115.2 million of commercial paper issued and $12.3 million of letters of credit issued, both backed by the facility. GATX also has a $100 million, 364-day, unsecured revolving credit facility, which matures on January 8, 2010, and remains fully available.

     The $550 million revolving credit facility contains various restrictive covenants, including requirements to maintain a fixed charge coverage ratio and an asset coverage test. The $100 million facility and certain of GATX’s other bank term loans have the same covenants as the $550 million facility. The indentures for GATX’s public debt also contain restrictive covenants, including limitations on loans, advances or investments in related parties and dividends it may distribute. Some of the indentures also contain limitation on liens provisions that limit the amount of secured indebtedness that GATX may incur, subject to several exceptions, including those permitting an unlimited amount of purchase money indebtedness and nonrecourse indebtedness. The loan agreements for certain of GATX’s wholly-owned European subsidiaries (collectively, “GRE”) also contain restrictive covenants, including leverage and cash flow covenants specific to those subsidiaries, restrictions on making loans and limitations on the ability of these subsidiaries to repay loans to certain related parties (including GATX) and to pay dividends to GATX. The covenants relating to loans and dividends effectively limit the ability of GRE to transfer funds to GATX. GATX does not anticipate any covenant violations nor does it anticipate that any of these covenants will restrict its operations or its ability to procure additional financing. As of March 31, 2009, GATX was in compliance with all covenants and conditions of its credit facilities, bank term loans, public debt indentures and European subsidiary loan agreements.

     The availability of GATX’s funding options may be affected by certain factors, including the global capital market environment and outlook as well as GATX’s financial performance. GATX’s access to capital markets at competitive rates is dependent on its credit rating and rating outlook, as determined by rating agencies such as Standard & Poor’s (“S&P”) and Moody’s Investor Service (“Moody’s”). As of March 31, 2009, GATX’s long-term unsecured debt was rated BBB+ by S&P and Baa1 by Moody’s. GATX’s short-term unsecured debt was rated A-2 by S&P and P-2 by Moody’s. GATX’s rating outlook from both agencies was stable.

     The capital markets continue to exhibit significant volatility, however, GATX continues to access the credit markets through term debt and commercial paper issuances, Subsequent to March 31, 2009, GATX issued $300 million of five-year unsecured notes with a yield to investors of 9.0%. Proceeds will be used to meet certain existing debt obligations and for general working capital purposes.

     At March 31, 2009, GATX’s unconditional obligations of $322.7 million were as follows (in millions):

Critical Accounting Policies

     There have been no changes to GATX’s critical accounting policies during the three months ended March 31, 2009; refer to GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, for a summary of GATX’s policies.

Non-GAAP Financial Information

     This report includes certain financial performance measures computed using non-Generally Accepted Accounting Principles (“GAAP”) components as defined by the SEC. As required under SEC rules, GATX has provided a reconciliation of these non-GAAP components to the most directly comparable GAAP components. Financial performance measures disclosed in this report are meant to provide additional information and insight into the historical operating results and financial position of the business. Management uses these performance measures to assist in analyzing GATX’s underlying financial performance from period to period and to establish criteria for compensation decisions. These measures are not in accordance with, or a substitute for, GAAP and may be different from, or inconsistent with, non-GAAP financial measures used by other companies.

GLOSSARY OF KEY TERMS

	•		Non-GAAP Financial Measures — Numerical or percentage based measures of a company’s historical performance, financial position or liquidity calculated using a component different from that presented in the financial statements as prepared in accordance with GAAP.
	•		Off Balance Sheet Assets — Assets, primarily railcars, which are financed with operating leases and therefore not recorded on the balance sheet. GATX estimates the off balance sheet asset amount by calculating the present value of committed future operating lease payments using the interest rate implicit in each lease.
	•		On Balance Sheet Assets — Total assets as reported on the balance sheet.

     Reconciliation of non-GAAP financial information (in millions):

Item 6. Exhibits

Exhibits:

Reference is made to the exhibit index which is included herewith and is incorporated by reference hereto.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 1, 2009

EXHIBIT INDEX