GATX - 10-Q quarterly report FY2011 Q2

 

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As of June 30, 2011, 46.6 million common shares were outstanding.

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

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

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

          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”).

          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 six months ended June 30, 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”).

          In 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.

          Presentation of Comprehensive Income — In June 2011, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance that revises the requirements for reporting other comprehensive income and its components. The guidance requires an entity to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. The guidance becomes effective for periods beginning after December 15, 2011, with early adoption permitted. Upon adoption, GATX may revise the presentation of its financial statements, but application of the new guidance will not impact GATX’s financial position, results of operations or cash flows.

          Fair Value Measurement — In May 2011, the FASB issued authoritative accounting guidance that changes some fair value measurement principles, clarifies application of existing guidance, and enhances fair value disclosure requirements. The guidance requires an entity to disclose transfers between Level 1 and Level 2 fair value measurements and the reasons for those transfers. The guidance becomes effective for periods beginning after December 15, 2011. Application of the new guidance is not expected to impact GATX’s financial position, results of operations or cash flows.

          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):

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

          Available for sale equity securities are valued based on quoted prices in an active exchange market. 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 tables set forth certain disclosures relating to GATX’s non-recurring Level 3 fair value measurements (in millions):

          For the first six months and second quarter of 2011, impairment losses of $1.2 million and $0.6 million, respectively, primarily related to scrapped wheelsets in Rail’s European fleet. For the first six months and second quarter of 2010, impairment losses of $0.6 million related to scrapped wheelsets in Rail’s European fleet. Also in the first six months of 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.

          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 June 30, 2011 and December 31, 2010, GATX had three instruments outstanding with an aggregate notional amount of $350.0 million for each period. As of June 30, 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 June 30, 2011 and December 31, 2010, GATX had 12 instruments and 13 instruments outstanding, respectively, with an aggregate notional amount of $78.8 million and $130.4 million, respectively. As of June 30, 2011, these derivatives had maturities ranging from 2011-2015. Within the next 12 months, GATX expects to reclassify $7.1 million ($4.5 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 June 30, 2011 was $3.4 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 (loss) impacts of GATX’s derivative instruments were (in millions):

          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 loans and fixed and floating rate debt were estimated based on discounted cash flow analyses using interest rates representative of loans with similar terms to borrowers of comparable credit quality. The following table sets forth the carrying amounts and fair values of GATX’s other financial instruments as of (in millions):

          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 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.

          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 June 30, 2011, GATX does not expect any material losses to result from these off balance sheet instruments since performance is not anticipated to be required.

          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 that GATX consolidates were as follows (in millions):

          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 railcar and equipment leasing affiliates that 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 between 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):

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

          In the first six months of 2011, GATX granted 416,700 stock appreciation rights (“SARs”), 200,366 restricted stock units, 87,570 performance shares and 10,444 phantom stock units. For the three and six months ended June 30, 2011, total share-based compensation expense was $2.4 million ($1.5 million after tax) and $4.9 million ($3.1 million after tax), respectively. For the three and six months ended June 30, 2010, total share-based compensation expense was $1.6 million ($1.0 million after tax) and $3.4 million ($2.1 million after tax), respectively.

          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.

          GATX’s effective tax rate was 25% for the six months ended June 30, 2011, compared to 22% for the six months ended June 30, 2010. In the prior year, GATX’s liability for unrecognized tax benefits was reduced by $3.7 million in connection with the close of various federal and foreign tax audits. Excluding the effect of the tax benefits, GATX’s effective rate for the first six months of 2010 was 29%. 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 June 30, 2011, GATX’s gross liability for unrecognized tax benefits totaled $43.3 million, which, if fully recognized, would decrease income tax expense by $23.3 million ($21.2 million net of federal tax).

          The components of pension and other post-retirement benefit costs for the three months ended June 30, 2011 and 2010, were as follows (in millions):

          The components of pension and other post-retirement benefit costs for the six months ended June 30, 2011 and 2010, were as follows (in millions):

          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):

          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.

          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 affirmed the trial court’s ruling. A further appeal by PKP to the Supreme Court is pending.

          As of June 30, 2011, PKP’s claims for damages totaled approximately PLN 144.1 million, or $52.6 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, on remand, the Court of Appeals or the trial court 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.

          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.

          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 and six months ended June 30, 2011 and 2010 (in millions):

          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; uncertainties in relations with labor unions representing GATX employees; 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.

          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 six months ended June 30, 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.

          Net income was $46.3 million, or $0.98 per diluted share, for the first six months of 2011 compared to net income of $40.2 million, or $0.86 per diluted share, for the first six months of 2010. The 2011 results include $12.6 million, or $0.27 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”). Results for the first six months of 2010 include a net benefit of $2.5 million, or $0.05 per diluted share, in aggregate after-tax income related to the favorable resolution of a litigation matter and a reversal of an income tax accrual, partially offset by unrealized losses related to certain interest rate swaps at AAE.

          Net income was $26.4 million, or $0.56 per diluted share, for the second quarter of 2011 compared to net income of $21.5 million, or $0.46 per diluted share, for the second quarter of 2010. Results for the second quarter of 2011 include $6.2 million, or $0.13 per diluted share, of after-tax unrealized gains related to certain interest rate swaps at AAE. Second quarter 2010 results include a net benefit of $3.3 million, or $0.07 per diluted share, in aggregate after-tax income related to the favorable resolution of a litigation matter and a reversal of an income tax accrual, partially offset by unrealized losses related to the previously mentioned interest rate swaps at AAE.

          Total investment volume was $260.1 million for the first six months of 2011 compared to $131.1 million for the first six months of 2010.

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

          The following table presents GATX’s return on equity (“ROE”) for the trailing twelve months ended June 30:

 

          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.

          Market conditions continued to improve in the second quarter of 2011 as U.S. carloadings increased, idle railcars declined, and lease rate pricing improved. Rail’s utilization in North America increased to 98.2% compared to 97.8% at the end of the first quarter and 96.5% at June 30, 2010. Lease rates on renewals and assignments also improved during the quarter as indicated by the average lease renewal rate on cars in the GATX Lease Price Index (the “LPI”, see definition below), which increased 4.4% from the average expiring lease rate, compared to decreases of 0.5% for the first quarter and 18.6% for the second quarter of 2010. Rail entered 2011 with approximately 21,000 cars on leases scheduled to expire during the year, of which approximately 8,700 occurred through the second quarter. The majority of these leases were either renewed or the underlying railcars were placed with new customers. Lease terms on renewals for cars in the LPI averaged 41 months in the current quarter and the first quarter, compared to 36 months for the second quarter of 2010. Rail is highly 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. At the end of the second quarter of 2011, fleet utilization was 95.7% compared to 95.8% at the end of the first quarter and 94.4% at June 30, 2010. AAE, which serves the freight railcar markets, is experiencing some improvement in its markets and fleet utilization is increasing. During the first six months of 2011, Rail’s investment volume was $156.3 million, compared to $88.5 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):