Share-Based Compensation

12 Months Ended

Dec. 31, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

NOTE 11.    Share-Based Compensation

GATX provides equity awards to its employees under the GATX Corporation 2004 Equity Incentive Compensation Plan, as amended (the “2004 Plan”). As of December 31, 2011, 3.2 million shares of common stock were authorized under the 2004 Plan and 0.8 million shares were available for future issuance. The 2004 Plan provides for the granting of nonqualified stock options, stock appreciation rights (“SAR”s), restricted stock and phantom stock awards. GATX recognizes compensation expense for these awards in selling, general and administrative expenses over the service period of each award. For 2011, 2010 and 2009, share-based compensation expense was $11.0 million, $8.0 million and $6.1 million, respectively, and related tax benefits were $4.1 million, $3.0 million and $2.3 million, respectively. These awards are more fully described below.

Stock Option/SAR Awards

Stock options/SARs provide for the purchase of shares of common stock and may be granted for periods not longer than seven years from the grant date (ten years for options granted prior to 2004). SARs entitle the holder to receive the difference between the market price of GATX’s common stock at the time of exercise and the exercise price, either in shares of common stock, cash or a combination thereof, at GATX’s discretion. Options entitle the holder to purchase shares of GATX common stock at a specified exercise price. Dividends accrue on all options/SARs granted under the 2004 Plan and are paid upon vesting. Dividends continue to be paid until the options/SARs are exercised, cancelled or expire. SARs vest and become exercisable in 1/3 annual increments over three years. The exercise price for stock options/SARs is equal to the average of the high and low trading prices of GATX common stock on the date of grant. Compensation expense is recognized on a straight-line basis over the applicable vesting period. Since 2006, only SARs have been awarded.

The estimated fair value of a GATX SAR is the sum of the value derived using the Black-Scholes option pricing model and the present value of dividends expected to be paid over the expected term of the SAR. The Black-Scholes valuation incorporates various assumptions, including expected term, expected volatility, and risk free interest rates. Expected term is based on historical exercise patterns and post-vesting terminations. Expected volatility is based on the historical volatility of GATX’s stock price over a period equal to the expected term. Risk-free interest rates are based on the implied yield on U.S. Treasury zero-coupon bond issues with a remaining term equal to the expected term.

The weighted average fair value for GATX’s SARs and the assumptions used to estimate fair value were:

	2011			2010			2009
Weighted average estimated fair value	$	13.88		$	11.13		$	7.35
Quarterly dividend rate	$	0.29		$	0.28		$	0.28
Expected term of SAR, in years		4.3			4.3			4.3
Risk-free interest rate		1.6	%		2.0	%		1.7	%
Dividend yield		3.4	%		4.3	%		6.6	%
Expected stock price volatility		41.9	%		41.8	%		36.0	%
Present value of dividends	$	4.76		$	4.55		$	4.58

Certain data with respect to stock options/SARs activity for the year ended December 31, 2011, were:

	Number of Options/SARs (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in millions)
Outstanding at beginning of the year		1,971		$	30.47
Granted		418			33.94
Exercised		(384	)		28.39			$	4.5
Forfeited/Cancelled		(23	)		28.16
Expired		(103	)		41.70
Outstanding at end of the year		1,879			31.08		3.7		24.2
Vested and exercisable at end of the year		1,120			32.58		2.5		13.0

The total intrinsic value of options/SARs exercised during the years ended December 31, 2011, 2010 and 2009 was $4.5 million, $1.0 million and immaterial, respectively. As of December 31, 2011, there was $5.3 million of unrecognized compensation expense related to nonvested SARs, which is expected to be recognized over a weighted average period of 1.8 years.

Restricted Stock and Performance Share Awards

Restricted stock entitles the recipient to receive a specified number of restricted shares of common stock. Restricted shares of common stock carry all dividend and voting rights, but are not transferable prior to the expiration of a specified restriction period, generally three years, as determined by the Compensation Committee of the Board of Directors (“Compensation Committee”). Dividends accrue on all restricted shares and are paid upon vesting. Compensation expense is recognized for these awards over the applicable restriction period.

Performance shares may be granted to key employees to focus attention on the achievement of certain strategic objectives. The shares are converted to common stock based on the achievement of predetermined performance goals at the end of a specified performance period as determined by the Compensation Committee. Performance shares do not carry voting rights. Dividends accrue on all performance shares and are paid upon vesting. An estimate of the number of shares expected to vest as a result of actual performance against the performance criteria is made at the time of grant to determine total compensation expense to be recognized. The estimate is reevaluated annually and total compensation expense is adjusted for any changes in the estimate, with a cumulative catch up adjustment (i.e., the cumulative effect of applying the change in estimate retrospectively) recognized in the period of change. Compensation expense is recognized for these awards over the applicable vesting period, generally three years.

GATX values its restricted stock and performance share awards based on the closing price of its stock on the grant date. As of December 31, 2011, there was $6.2 million of unrecognized compensation expense related to these awards, which is expected to be recognized over a weighted average period of 1.7 years.

Certain data with respect to restricted stock and performance share activity for the year ended December 31, 2011, were:

	Number of Share Units Outstanding			Weighted Average Grant-Date Fair Value
Restricted Stock:
Nonvested at beginning of the year		200,876		$	25.30
Granted		200,736			34.47
Vested		(56,160	)		35.24
Forfeited		(11,615	)		28.39
Nonvested at end of the year		333,837			29.04
Performance Shares:
Nonvested at beginning of the year		111,917		$	22.85
Granted		87,570			34.27
Net increase due to estimated performance		25,599			30.58
Vested		(36,652	)		16.90
Nonvested at end of the year		188,434			30.36

The total fair value of restricted stock and performance shares vested during the years ended December 31, 2011, 2010 and 2009, was $2.7 million, $2.5 million and $1.8 million, respectively.

Phantom Stock Awards

Phantom stock is granted to non-employee directors as a component of their compensation for service on GATX’s Board of Directors. In accordance with the terms of the phantom stock awards, each director is credited with a quantity of units that equate to, but are not, common shares in the Company. Phantom stock awards are dividend participating with all dividends reinvested in additional phantom shares at the average of the high and low trading prices of GATX stock on the dividend payment date. Settlement of whole units of phantom stock will be made in shares of common stock and fractional units will be paid in cash at the expiration of each director’s service on the Board and/or in accordance with his or her deferral election. In 2011, GATX granted 20,106 units of phantom stock and 158,302 units were outstanding as of December 31, 2011.