| GATX CORP Item 1A Risk Factors |
| 7 ITEM 1A RISK FACTORS GATXapstas businesses are subject to a number of risks which investors should consider |
| GATX MAY NOT BE ABLE TO SECURE FINANCING TO FUND ITS OPERATIONS OR CONTRACTUAL COMMITMENTS GATX is dependent, in part, upon the issuance of unsecured and secured debt to fund its operations and contractual commitments |
| A number of factors could cause GATX to incur increased borrowing costs and to have greater difficulty accessing public and private markets for both secured and unsecured debt |
| These factors include the global capital market environment and outlook, GATXapstas financial performance and GATXapstas credit ratings and outlook as determined primarily by rating agencies such as Standard & Poorapstas ( "e S&P "e ) and Moodyapstas Investor Service ( "e Moodyapstas "e ) |
| In addition, based on GATXapstas current credit ratings, access to the commercial paper market and uncommitted money market lines is uncertain and cannot be relied upon |
| It is also possible that GATXapstas other sources of funds, including available cash, bank facilities, cash flow from operations and portfolio proceeds may not provide adequate liquidity to fund its operations and contractual commitments |
| UNITED STATES AND WORLD ECONOMIC AND POLITICAL CONDITIONS, INCLUDING ACTS OR THREATS OF TERRORISM AND/OR WAR, COULD ADVERSELY AFFECT GATX &apos S BUSINESSES National and international political developments, instability and uncertainties, including continuing political unrest and threats of terrorist attacks, could result in global economic weakness in general and in the United States in particular, and could have an adverse impact on GATXapstas businesses |
| The effects may include legislation or regulatory action directed toward improving the security of aircraft and railcars against acts of terrorism, which could affect the construction and/or operation of aircraft and railcars, a decrease in demand for air travel and rail services, consolidation and/or additional bankruptcies in the airline industry; lower utilization of new and existing aircraft and rail equipment, lower rail and aircraft rental rates and impairment of rail and air portfolio assets or capital market disruption, which may raise GATXapstas financing costs or limit its access to capital, and liability or losses resulting from acts of terrorism involving GATXapstas assets |
| Depending upon the severity, scope and duration of these effects, the impact on GATXapstas financial position, results of operations and cash flows could be material |
| COMPETITION COULD RESULT IN DECREASED PROFITABILITY IN GATX &apos S BUSINESSES GATX is subject to intense competition in its leasing and lending businesses |
| In many cases, competitors are larger entities that have greater financial resources, higher credit ratings and a lower cost of capital than 7 GATX These factors may enable competitors to offer leases and loans to customers at lower rates than GATX is able to provide, thus impacting GATXapstas asset utilization or GATXapstas ability to lease assets or make loans on a profitable basis |
| GATX &apos S CORE BUSINESSES DEPEND UPON ITS CUSTOMERS LEASING ASSETS GATXapstas core businesses rely upon its customers continuing to lease rather than purchase assets |
| There are a number of items that factor into the customerapstas decision to lease or purchase assets, such as tax considerations, interest rates, balance sheet considerations, and operational flexibility |
| GATX has no control over these external considerations and changes in these factors could negatively impact demand for its assets held for lease |
| GATX CANNOT PREDICT WHETHER INFLATION WILL CONTINUE TO HAVE A POSITIVE IMPACT ON ITS FINANCIAL RESULTS Inflation in leasing rates as well as inflation in residual values for air, rail and other equipment has historically benefited GATXapstas financial results |
| Effects of inflation are unpredictable as to timing and duration and depend on market conditions and economic factors |
| GATX &apos S ASSETS MAY BECOME OBSOLETE GATXapstas core assets may be subject to functional, regulatory, or economic obsolescence |
| Although GATX believes it is adept at managing obsolescence risk, there is no guarantee that changes in various market fundamentals or the adoption of new regulatory requirements will not unexpectedly cause asset obsolescence in the future |
| GATX &apos S ALLOWANCE FOR POSSIBLE LOSSES MAY BE INADEQUATE TO PROTECT AGAINST LOSSES GATXapstas allowance for possible losses on gross receivables may be inadequate if unexpected adverse changes in the economy differ from the expectations of management, or if discrete events adversely affect specific customers, industries or markets |
| If the allowance for possible losses is insufficient to cover losses related to gross receivables, then GATXapstas financial position or results of operations could be negatively impacted |
| THE FAIR MARKET VALUE OF ITS LONG-LIVED ASSETS MAY DIFFER FROM THE VALUE OF THOSE ASSETS REFLECTED IN ITS FINANCIAL STATEMENTS GATXapstas assets consist primarily of long-lived assets such as railcars, aircraft, marine vessels and industrial equipment |
| The carrying value of these assets in the financial statements may at times differ from their fair market value |
| These valuation differences may be positive or negative and may be material based on market conditions and demand for certain assets |
| GATX regularly reviews its long-lived assets for impairment |
| GATX MAY INCUR FUTURE ASSET IMPAIRMENT CHARGES An asset impairment charge may result from the occurrence of unexpected adverse events or management decisions that impact GATXapstas estimates of expected cash flows generated from its long-lived assets or joint ventures |
| GATX regularly reviews long-lived assets and joint ventures for impairment, including when events or changes in circumstances indicate the carrying value of an asset may not be recoverable |
| GATX may be required to recognize asset impairment charges in the future as a result of a weak economic environment, challenging market conditions, events related to particular customers or asset types, or as a result of asset or portfolio sale decisions by management |
| GATX MAY NOT BE ABLE TO PROCURE INSURANCE ON A COST-EFFECTIVE BASIS IN THE FUTURE The ability to insure its rail and aircraft assets and their associated risks is an important aspect of GATXapstas ability to manage risk in these core businesses |
| There is no guarantee that such insurance will be available on a cost-effective basis consistently in the future |
| 8 GATX IS SUBJECT TO EXTENSIVE ENVIRONMENTAL REGULATIONS AND ITS COSTS OF REMEDIATION MAY BE MATERIALLY GREATER THAN THE REMEDIATION COSTS IT HAS ESTIMATED GATX is subject to federal and state requirements for protection of the environment, including those for discharge of hazardous materials and remediation of contaminated sites |
| GATX routinely assesses its environmental exposure, including obligations and commitments for remediation of contaminated sites and assessments of ranges and probabilities of recoveries from other responsible parties |
| Due to the regulatory complexities and risk of unidentified contaminants on its properties, the potential exists for remediation costs to be materially different from the costs GATX has estimated |
| GATX HAS BEEN, AND MAY IN THE FUTURE BE, INVOLVED IN VARIOUS TYPES OF LITIGATION The nature of assets which GATX owns and leases exposes the Company to the potential for various claims and litigation related to, among other things, personal injury and property damage, environmental claims and other matters |
| The transportation of certain commodities by GATXapstas railcars, particularly those classified as hazardous materials, pose risks resulting in potential liabilities and losses that could have a significant effect on GATXapstas consolidated financial condition or results of operations |
| HIGH ENERGY PRICES COULD HAVE A NEGATIVE EFFECT ON THE DEMAND FOR GATX &apos S PRODUCTS AND SERVICES Energy prices, including the price of natural gas and oil, are significant cost drivers for many of our customers, particularly in the chemical and airline industries |
| Sustained high energy or commodity prices could negatively impact these industries resulting in a corresponding adverse effect on the demand for GATXapstas assets held for lease and related services |
| In addition, sustained high steel prices could result in higher new railcar acquisition costs |
| NEW REGULATORY RULINGS COULD NEGATIVELY AFFECT GATX &apos S PROFITABILITY GATXapstas air and rail operations are subject to the jurisdiction of a number of federal agencies, including the Department of Transportation |
| State agencies regulate some aspects of rail operations with respect to health and safety matters not otherwise preempted by federal law |
| GATXapstas operations are also subject to the jurisdiction of regulatory agencies of foreign countries |
| New regulatory rulings may negatively impact GATXapstas financial results through higher maintenance costs or reduced economic value of its assets |
| EVENTS OR CONDITIONS NEGATIVELY AFFECTING CERTAIN ASSETS, CUSTOMERS OR GEOGRAPHIC REGIONS IN WHICH GATX HAS A LARGE INVESTMENT COULD HAVE A NEGATIVE IMPACT ON ITS RESULTS OF OPERATIONS GATXapstas revenues are generally derived from a wide range of asset types, customers and geographic locations |
| However, from time to time, GATX could have a large investment in a particular asset type, a large revenue stream associated with a particular customer, or a large number of customers located in a particular geographic region |
| Decreased demand from a discrete event impacting a particular asset type, discrete events with a specific customer, or adverse regional economic conditions, particularly for those assets, customers or regions in which GATX has a concentrated exposure, could have a negative impact on GATXapstas results of operations |
| FLUCTUATIONS IN FOREIGN EXCHANGE RATES COULD HAVE A NEGATIVE IMPACT ON GATX &apos S RESULTS OF OPERATIONS GATXapstas results are exposed to foreign exchange rate fluctuations as the financial results of certain subsidiaries are translated from their local currency into US dollars upon consolidation |
| As exchange rates vary, the operating results of their subsidiaries, when translated, may differ materially from period to period |
| GATX is also subject to gains and losses on foreign currency transactions, which could vary based on fluctuations in exchange rates and the timing of the transactions and their settlement |
| In addition, fluctuations in foreign exchange rates can have an effect on the demand and relative price for services provided by GATX domestically and internationally, and could have a negative impact on GATXapstas results of operations |
| 9 GATX MAY BE UNABLE TO MAINTAIN ASSETS ON LEASE AT SATISFACTORY LEASE RATES GATXapstas profitability is largely dependent on its ability to maintain assets on lease (utilization) at satisfactory lease rates |
| A number of factors can adversely affect utilization and lease rates, including, but not limited to: an economic downturn causing reduced demand or oversupply in the markets in which the Company operates, changes in customer behavior, or any other change in supply or demand caused by factors discussed in this Risk section |
| CHANGES IN ASSUMPTIONS USED TO CALCULATE POST-RETIREMENT COSTS COULD ADVERSELY AFFECT GATX &apos S RESULTS OF OPERATIONS GATXapstas pension and other post-retirement costs are dependent on various assumptions used to calculate such amounts, including discount rates, long-term return on plan assets, salary increases, health care cost trend rates and other factors |
| Changes to any of these assumptions could adversely affect GATXapstas results of operations |
| GATX &apos S EFFECTIVE TAX RATE COULD BE ADVERSELY AFFECTED BY CHANGES IN THE MIX OF EARNINGS IN THE US AND FOREIGN COUNTRIES GATX is subject to taxes in both the US and various foreign jurisdictions |
| As a result, GATXapstas effective tax rate could be adversely affected by changes in the mix of earnings in the US and foreign countries with differing statutory tax rates, legislative changes impacting statutory tax rates, including the impact on recorded deferred tax assets and liabilities, changes in tax laws or by material audit assessments |
| In addition, deferred tax balances reflect the benefit of net operating loss carryforwards, the realization of which will be dependent upon generating future taxable income |
| GATX &apos S INTERNAL CONTROL OVER FINANCIAL ACCOUNTING AND REPORTING MAY NOT DETECT ALL ERRORS OR OMISSIONS IN THE FINANCIAL STATEMENTS Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of internal control over financial reporting and a report by the Companyapstas independent auditors addressing these assessments |
| If GATX fails to maintain the adequacy of internal control over financial accounting, the Company may not be able to ensure that GATX can conclude on an ongoing basis that it has effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act and related regulations |
| Although GATXapstas management has concluded that adequate internal control procedures are in place, no system of internal control can provide absolute assurance that the financial statements are accurate and free of error |
| As a result, the risk exists that GATXapstas internal control may not detect all errors or omissions in the financial statements |