Significant Accounting Policies

Basis of Presentation — The accompanying consolidated financial statements were prepared in accordance with United States generally accepted accounting principles (“GAAP”).

Use of Estimates — The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. The Company regularly evaluates its estimates and judgments based on historical experience and other relevant facts and circumstances. Actual amounts could differ from those estimates.

Correction of Misstatement — 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 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 determined that the effect of this error was immaterial and adjusted its consolidated balance sheet and consolidated statement of cash flows in 2010 to correct this error.

Reclassification — Certain amounts reported in the 2011 and 2010 financial statements have been reclassified to conform to the 2012 presentation. In particular, GATX changed the presentation of certain items reported on its Statement of Comprehensive Income. Specifically:


•	Asset remarketing income and scrapping gains were removed from revenue and asset impairments were removed from other expense. These amounts have been aggregated and included as a separate line item entitled net gain (loss) on asset dispositions.


•	Share of affiliates' earnings was formerly presented as a pre-tax line item and was combined with revenue in the gross income line. These earnings are now presented on a net-of-tax basis after the subtotal "Income before Income Taxes and Share of Affiliates' Earnings".


•	Operating revenues relating to Portfolio Management owned vessels are reported as marine operating revenues. Previously they were treated as usage rents and recorded with lease income. The related marine operating expenses, which were previously reported as other expenses, are now reported as marine operating expenses.

Consolidation — The consolidated financial statements of GATX Corporation and Subsidiaries include the assets, liabilities, revenues and expenses of GATX, all majority-owned subsidiaries that the Company controls and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Intercompany transactions and balances have been eliminated. GATX's consolidated subsidiaries include the following special-purpose corporations engaged in the financing of railcars, General American Railcar Corporation, General American Railcar Corporation II, General American Railcar Corporation III, General American Marks Company and GARC LLC (collectively the "SPCs"). The obligations of the SPCs are nonrecourse to GATX and their assets are available first to satisfy claims of their creditors.

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, and they require management to make 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 events that may result in an entity becoming a VIE or GATX becoming the primary beneficiary of an existing VIE. See Note 7 for additional information.

Investments in Affiliated Companies —Investments in joint ventures and other non-controlled entities are accounted for using the equity method when it is determined that GATX has the ability to exercise significant influence over the financial and operating policies of the investee. Under the equity method, initial investments are recorded at cost and then adjusted for GATX’s share of the affiliates’ undistributed earnings and losses, distributions of capital, and loan payments to or from the affiliate. Loans to and from affiliates are reflected as part of GATX’s investment in the affiliate and interest on these loans is included in GATX’s proportional share of the affiliates’ earnings. GATX reviews the carrying amount of its investments in affiliates annually, or whenever events or circumstances indicate that a decline in value may have occurred. If GATX determines an investment is impaired on an other-than-temporary basis, it records a loss equal to the difference between the fair value of the investment and its carrying value. See Note 6 for additional information.

Fair Value Measurements — As defined by GAAP, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified according to a three-level hierarchy based on management’s judgment about the reliability of the inputs used in the fair value measurement. Level 1 inputs are quoted prices available in active markets for identical assets or liabilities. Level 2 inputs are observable, either directly or indirectly, and include quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 inputs are unobservable, meaning they are supported by little or no market activity. Fair value measurements classified as Level 3 typically rely on the use of pricing models and discounted cash flow methodologies where significant management judgment is required. See Note 9 for additional information.

Cash and Cash Equivalents — All highly liquid investments with a maturity of three months or less when purchased are classified as cash equivalents.

Restricted Cash — Cash and cash equivalents that are restricted as to withdrawal and use. GATX’s restricted cash primarily relates to contractually required amounts maintained for six wholly-owned bankruptcy-remote, special-purpose corporations.

Loans — GATX records loans at the principal amount outstanding plus accrued interest. The loan portfolio is reviewed regularly and a loan is classified as impaired when it is probable that GATX will be unable to collect all amounts due under the loan agreement. Since most loans are collateralized, impairment is generally measured as the amount by which the carrying value of the loan exceeds expected repayments plus the fair value of the underlying collateral. Generally, interest income is not recognized on impaired loans until the loan has been paid up to contractually current status or as conditions warrant.

Operating Assets and Facilities — Operating assets and facilities are principally stated at cost plus capitalized improvements. Assets acquired under capital leases are included in operating assets, and the related obligations are recorded as liabilities. Operating assets and facilities are depreciated over their estimated useful lives or lease terms to estimated residual values using the straight-line method. Leasehold improvements are depreciated over the shorter of their useful lives or the lease term. The estimated depreciable lives of operating assets and facilities are as follows:



Railcars	30 — 38 years
Locomotives	10 — 20 years
Buildings	40 — 50 years
Leasehold improvements	5 — 15 years
Marine vessels	30 — 65 years
Other equipment	5 — 30 years

GATX reviews long-lived assets, such as operating assets and facilities, for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is evaluated by comparing the carrying amount of the asset to the undiscounted future net cash flows GATX expects the asset to generate. If GATX determines an asset is impaired, it recognizes an impairment loss equal to the excess of the carrying amount over the asset’s fair value. Assets to be disposed of that meet specified accounting criteria are classified as held for sale and recorded at the lower of their carrying amount or fair value less costs to sell.

Lease Classification — GATX determines the classification of a lease at its inception. If the provisions of the lease subsequently change, other than by renewal or extension, GATX evaluates if that change would have resulted in a different classification had the change been in effect at inception. If so, the revised agreement is considered a new lease for lease classification purposes. See Note 5 for additional information.

Finance Leases — Finance leases include direct finance leases and leveraged leases. Direct finance leases consist of a gross lease payment receivable and an estimated residual value of the leased equipment at the lease termination date, net of unearned income. Lease payment receivables represent the rent GATX will receive over the remainder of the lease term. Initial unearned income is the amount by which the sum of the original lease payment receivable and the estimated residual value exceeds the original cost or carrying value of the underlying equipment. GATX amortizes unearned income to lease income over the lease term in a manner that produces a constant rate of return on the net investment in the lease. Finance leases that are mainly financed at inception with nonrecourse borrowings and that meet certain criteria are accounted for as leveraged leases. Leveraged lease receivables are stated net of related nonrecourse debt. Initial unearned income for leveraged leases is the excess of anticipated cash flows (including estimated residual values and net of the related debt service) over the original investment in the lease. See Note 5 for additional information.

GATX regularly reviews the performance of the finance lease portfolio and classifies finance leases as non-performing if it is probable that GATX will be unable to collect all amounts due under the lease. GATX suspends the accrual of income on non-performing finance leases until all contractual payments are current or as conditions warrant. Payments received on non-performing finance leases are applied to the lease payment receivable.

Residual Values — Residual values are a component of GATX’s investment in finance leases. Residual values are the estimated value of an asset at the end of a finance lease contract. GATX reviews its estimates of residual value annually or whenever events or circumstances indicate that residual values may have declined. Other-than-temporary declines in value are recognized as impairments.

Inventory — GATX’s inventory consists of railcar and locomotive repair components and marine vessel spare parts. All inventory balances are stated at lower of cost or market. Railcar repair components are valued using the average cost method. Vessel spare parts inventory is valued using the first-in, first-out method. Inventory is included in other assets on the balance sheet.

Goodwill — GATX recognizes goodwill when the purchase price of an acquired business exceeds the fair value of the acquired net assets and assigns the goodwill to the same reporting unit as the net assets of the acquired business. GATX’s reporting units are based on the composition of its operating segments, taking into consideration whether the operating segments consist of multiple businesses and, if so, whether the businesses operate in different economic environments. Goodwill is tested annually for impairment by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, then the goodwill of the reporting unit is not considered impaired. If the carrying amount of the reporting unit exceeds its fair value, GATX compares the implied fair value of the reporting unit’s goodwill (the reporting unit fair value less its carrying amount, excluding goodwill) with the carrying amount of the goodwill. An impairment loss is recorded in the amount that the carrying amount of goodwill exceeds its implied fair value. Reporting unit fair values are primarily estimated using discounted cash flow models. GATX performs its impairment test annually, in the fourth quarter, or in interim periods if events or circumstances indicate a potential impairment. See Note 16 for additional information.

Allowance for Losses — The allowance for losses is an estimate of credit losses existing in reservable assets. Reservable assets are divided into two categories: rent and other receivables, which includes short-term trade billings, and loans and finance lease receivables. GATX bases loss reserves for rent and other receivables on historical loss experience and judgments about the impact of economic conditions, the state of the markets GATX operates in and collateral values. In addition, GATX may establish specific reserves for known troubled accounts. Reserve estimates for loans and finance lease receivables are generally evaluated on a customer-specific basis, considering the same factors as rent and other receivables as well as a regular assessment of each customer’s specific credit situation. Amounts are charged against the allowance when they are deemed to be uncollectable. There were no material changes in estimation methods or assumptions for the allowance during 2012. GATX believes that the allowance is adequate to cover losses inherent in its reservable assets as of December 31, 2012. Since the allowance is based on judgments and estimates, it is possible that actual losses incurred will differ from the estimate. See Note 17 for additional information.

Income Taxes — Provisions for federal, state and foreign income taxes are calculated on reported income before income taxes. Calculations of deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities, using enacted rates in effect for the year the differences are expected to reverse. The cumulative effect of any changes in tax rates from those previously used in determining deferred tax assets and liabilities is reflected in the provision for income taxes in the period of change. Provisions for income taxes in any given period differ from those currently payable or receivable because certain items of income and expense are recognized in different periods for financial reporting purposes than for income tax purposes. Uncertain tax positions are items deducted for tax purposes, but for which a tax benefit has not been recognized in the financial statements due to the uncertainty of the tax position. GATX’s liability for uncertain tax positions is included in other liabilities on the balance sheet. See Note 12 for additional information.

Derivatives — 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 comprehensive 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 expenses and the related cash flows are included in cash flows from operating activities.

Derivatives that meet specific accounting criteria are formally designated as qualifying hedges at inception. These criteria require that the derivative is expected to be highly effective at offsetting changes in the fair value or expected cash flows of the hedged exposure both at the inception of the hedging relationship and on an ongoing basis. GATX primarily uses derivatives, such as interest rate swap agreements, Treasury rate locks, options and currency forwards, to hedge its exposure to interest rate and foreign currency exchange rate risk on existing and anticipated transactions. For derivatives designated as fair value hedges, changes in the fair value of both the derivative and the hedged item are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded as part of other comprehensive income (loss) and recognized in earnings in the period the hedged transaction affects earnings. Any ineffective portion of the change in the fair value of the derivative is immediately recognized in earnings. Although GATX does not hold or issue derivative financial instruments for purposes other than hedging, certain derivatives are not designated as accounting hedges. Changes in the fair value of these derivatives are recognized in earnings immediately. See Note 9 for additional information.

Defined Benefit Pension and Other Post-Retirement Plans — GATX’s balance sheet reflects the funded status of its pension and post-retirement plans. The funded status of the plans is measured as the difference between the fair value of the plan assets and the projected benefit obligation. GATX recognizes the aggregate overfunding of any plans in other assets, the aggregate underfunding of any plans in other liabilities and the corresponding adjustments to other comprehensive income (loss), net of related taxes.

Foreign Currency — The assets and liabilities of GATX’s operations having non-U.S. dollar functional currencies are translated at exchange rates in effect at year end. Income, expenses and cash flows are translated monthly, using average exchange rates. Gains and losses resulting from the translation of foreign currency financial statements are deferred and recorded as a separate component of other comprehensive income (loss). Gains (losses) resulting from foreign currency transactions and from the remeasurement of non-functional currency denominated assets and liabilities, which are recorded net of related hedges in other expense during the periods in which they occur, were $0.5 million, $(1.6) million and $(1.7) million for 2012, 2011 and 2010, respectively.

Environmental Liabilities — GATX records reserves for environmental remediation costs at sites relating to past and/or discontinued operations when they are probable and a reasonable estimate of the expected costs can be made. Adjustments to initial estimates are recorded when necessary. Since reserves are based on estimates, actual environmental remediation costs may differ. Environmental remediation costs that relate to current or future operations are expensed or capitalized as appropriate. See Note 22 for additional information.

Lease Revenue — Lease revenue includes revenue from full-service and net operating leases, and direct finance leases. Full-service leases are priced as an integrated service that includes amounts related to executory costs (e.g., maintenance, insurance and ad valorem taxes). GATX does not offer stand-alone maintenance service contracts and is unable to separate executory costs from full service lease income based on observable data. Operating lease revenue, including amounts related to executory costs, is recognized on a straight-line basis over the term of the underlying lease. As a result, lease revenue may not be recognized in the same period as maintenance and other executory costs, which are expensed as incurred. Finance lease income is recognized using the interest method, which produces a constant yield over the term of the lease. See Note 5 for additional information.

Marine Operating Revenue —Marine operating revenue is recognized as shipping services are performed and revenue is allocated among reporting periods based on the relative transit time in each reporting period for shipments in process at any month end.

Other Revenue — Other revenue includes customer liability repair revenue, fee income, interest on loans and other miscellaneous revenues. These revenues are recognized when earned, which, in the case of management fees received from affiliates, is when services are performed.

Interest Expense, net — Interest expense is the interest accrued on indebtedness and amortization of debt issuance costs and debt discounts. Debt issuance costs and discounts are deferred and amortized over the applicable term of the related debt. Interest expense is reported net of interest income on bank deposits, which was $1.9 million, $0.7 million and $0.2 million for 2012, 2011 and 2010, respectively.

Operating Lease Expense — GATX leases certain railcars and other assets and facilities closely associated with its revenue generating operations, such as maintenance facilities and equipment. These leases are classified as operating leases and the associated lease expense is recorded on a straight-line basis. Gains and financing costs associated with sale-leasebacks are deferred and amortized as a component of operating lease expense over the related leaseback term. GATX’s leases of office facilities and related administrative assets are also classified as operating leases and the associated expense is recorded in selling, general, and administrative expense (“SG&A”). Total operating lease expense, which includes amounts recorded in SG&A, was $133.3 million, $137.3 million and $145.4 million, in 2012, 2011 and 2010, respectively. See Note 5 for additional information.

Lease and Loan Origination Costs — Initial direct costs of direct finance leases are deferred and amortized over the lease term as an adjustment to lease income. Loan origination fees and related direct loan origination costs for a given loan are offset, and the net amount is deferred and amortized over the term of the loan as an adjustment to interest income.

Maintenance and Repair Costs — Maintenance and repair costs are expensed as incurred. Costs incurred in connection with planned major maintenance activities that improve or extend the useful life of an asset are capitalized and depreciated over their estimated useful life. Required regulatory survey costs for vessels are capitalized and amortized over the applicable survey period, which is generally five years.

ASC Expense Seasonality — ASC's sailing season runs from April 1 - December 31 of each year. Certain indirect expenses incurred prior to the beginning of the sailing season, including winter maintenance, insurance, operating lease expense and depreciation, are deferred and amortized ratably over the sailing season. Otherwise, expenses are recognized as incurred.

Share-Based Compensation — GATX measures share-based compensation expense based on the grant date fair value of an award and recognizes the expense net of estimated forfeitures over the requisite service period of each award. Forfeiture rates are estimated at the grant date based on historical experience and adjusted in subsequent periods for differences in actual forfeitures from those estimates. See Note 11 for additional information.

Net Gain on Asset Dispositions — Net gain on asset dispositions consists of disposition gains on sales of operating assets and residual sharing income ("asset remarketing income"), non-remarketing disposition gains, and asset impairments. Disposition gains, including non-remarketing gains, are recognized upon completion of the sale or scrapping of operating assets. Residual sharing income includes fees received from sale of managed assets and assets subject to residual value guarantees, and are recognized upon completion of the underlying transactions.

The following table presents the net gain on asset dispositions for the year ended (in millions) :



	2012			2011			2010
Disposition gains	$	42.7		$	40.4		$	23.8
Residual sharing income	22.6			5.2			7.6
Non-remarketing disposition gains	19.2			27.0			18.0
Asset impairments	(5.0		)	(6.8		)	(8.3		)
Net Gain on Asset Dispositions	$	79.5		$	65.8		$	41.1

Other Income (Expense) —Other income and expense includes fair value adjustments, gains and/or losses on foreign currency transactions and remeasurements, legal defense costs and litigation settlements, along with other miscellaneous income and expense items.

New Accounting Pronouncements

Accumulated Other Comprehensive Income - In January 2013, the FASB issued authoritative accounting guidance that requires presentation and disclosure of the effects on components of net income of significant amounts reclassified out of accumulated other comprehensive income. The guidance becomes effective for periods beginning after December 31, 2012, with early adoption permitted. Application of the new guidance will not impact GATX's financial position, results of operations or cash flows.