GATX CORP (GATX) FY 2022 MD&A

OVERVIEW

We lease, operate, manage, and remarket long-lived, widely used assets, primarily in the rail market. We report our financial results through three primary business segments: Rail North America, Rail International, and Portfolio Management. Financial results for our tank container leasing business ("Trifleet Leasing") are reported in the Other segment. Historically, we also reported financial results for American Steamship Company ("ASC") as a fourth segment.

In 2022, after a thorough strategic review, we made the decision to exit our rail business in Russia ("Rail Russia"), which is reported within the Rail International segment. This decision was due to the impacts of the Russia/Ukraine conflict on our business and the business risks associated with the geopolitical environment resulting from that conflict. Therefore, the net assets of Rail Russia were classified as held for sale and an impairment loss of $14.6 million was recognized in 2022. On January 31, 2023, we completed the sale of Rail Russia. See "Note 26. Subsequent Events" in Part II, Item 8 of this Form 10-K.

In 2022, we made the decision to sell our liquefied gas-carrying vessels (the "Specialized Gas Vessels") within the Portfolio Management segment. Therefore, the Specialized Gas Vessels were classified as held for sale and impairment losses of $34.3 million were recognized in 2022. We sold two of the vessels in 2022, and the net proceeds received approximated the carrying value of these vessels.

In 2021, we began investing directly in aircraft spare engines through our entity, GATX Engine Leasing Ltd. ("GEL"). In 2021, GEL acquired 14 aircraft spare engines for approximately $352 million, including four engines for $120 million from Rolls-Royce & Partners Finance joint ventures (collectively the "RRPF affiliates" or "RRPF"). In 2022, GEL acquired five aircraft spare engines for approximately $150 million. Financial results for this business are reported in the Portfolio Management segment.

On December 29, 2020, we acquired Trifleet Leasing Holding B.V. ("Trifleet"), one of the largest tank container lessors in the world. Financial results for this business are reported in the Other segment. See "Note 4. Business Combinations" in Part II, Item 8 of this Form 10-K for additional information. A more complete description of our business is included in “Item 1. Business," in Part I of this Form 10-K.

On May 14, 2020, we completed the sale of our ASC business. As a result, ASC is reported as discontinued operations, and financial data for the ASC segment has been segregated and presented as discontinued operations for all periods presented. See "Note 25. Discontinued Operations" Part II, Item 8 of this Form 10-K for additional information. Unless otherwise indicated, the following information relates to continuing operations.

The following discussion and analysis should be read in conjunction with the audited financial statements included in "Item 8. Financial Statements and Supplementary Data" in this Form 10-K. We based the discussion and analysis that follows on financial data we derived from the financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and on certain other financial data that we prepared using non-GAAP components. For a reconciliation of these non-GAAP measures to the most comparable GAAP measures, see “Non-GAAP Financial Measures” at the end of this item. This discussion does not include the comparison of prior year 2021 to 2020 financial results, which can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

Russia/Ukraine Conflict

On February 24, 2022, Russian military forces launched a military action in Ukraine. In response to this action, the United States and other countries imposed various economic sanctions and measures against Russia, Belarus, certain sections of Ukraine, and related persons and entities. Russia subsequently enacted countermeasures. Additional sanctions and countermeasures continued to be imposed throughout 2022 as the conflict continued. We continue to closely monitor developments and potential impacts from enacted sanctions and countermeasures and will take mitigating actions as appropriate. This conflict and resulting response has impacted the global economy, financial markets, and supply chains and could adversely affect our business, financial condition, and results of operations.

To date, the conflict has not had a material impact on business operations at our global railcar, aircraft spare engine, and tank container leasing businesses outside of Russia. Furthermore, the nature of the impact on financial results varies across our business units. Higher steel prices have led to higher new asset costs across our rail and tank container leasing businesses, a trend that supports higher lease rates on many existing assets but makes new investments more challenging. Supply chain disruptions, slower new railcar

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deliveries, and limited access to key components such as wheelsets have been more impactful in Europe and India. We are monitoring the nature and magnitude of these impacts across our rail and tank container leasing businesses.

We had limited rail operations in Russia, which consisted of 380 railcars on lease to three customers and accounted for approximately 1% of GATX's consolidated net income for the year ended December 31, 2022. In 2022, after a thorough strategic review, we decided to exit Rail Russia. This decision was due to the impacts of the Russia/Ukraine conflict on our business and the business risks associated with the geopolitical environment resulting from that conflict. As a result, the net assets of Rail Russia have been classified as held for sale as of December 31, 2022 and an impairment loss of $14.6 million was recognized in 2022. See "Note 10. Asset Impairments and Assets Held for Sale" in Part II, Item 8 of this Form 10-K for further information. On January 31, 2023, we completed the sale of Rail Russia. See "Note 26. Subsequent Events" in Part II, Item 8 of this Form 10-K.

RRPF financial results have also been affected by the conflict. In 2022, RRPF terminated leases for three aircraft spare engines leased to a Russian airline. The Russian government prohibited these engines from leaving the country; therefore, RRPF recorded an impairment charge associated with these three engines in 2022. GATX's 50% share of this net impairment was $15.3 million ($11.5 million after tax).

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DISCUSSION OF OPERATING RESULTS

The following table shows a summary of our reporting segments and consolidated financial results relating to continuing operations and discontinued operations for the years ended December 31 (dollars in millions, except per share data):

_________

(1) See "Non-GAAP Financial Measures" at the end of this item for further details.

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2022 Summary

Net income from continuing operations was $155.9 million, or $4.35 per diluted share, for 2022 compared to $143.1 million, or $3.98 per diluted share, for 2021, and $150.2 million, or $4.24 per diluted share, for 2020. Results for 2022 included a net negative impact of $61.8 million ($1.72 per diluted share) from tax adjustments and other items, compared to a net negative impact of $39.1 million ($1.08 per diluted share) from tax adjustments and other items in 2021 and a net negative impact of $12.3 million ($0.35 per diluted share) from tax adjustments and other items in 2020 (see "Non-GAAP Financial Measures" at the end of this item for further details).

•At Rail North America, segment profit in 2022 was higher than prior year. The increase was primarily attributable to higher net gains on asset dispositions.

•At Rail International, segment profit in 2022 was lower than prior year, due to the impairment of Rail Russia and the negative impact of foreign exchange rates, partially offset by higher revenue from more railcars on lease.

•At Portfolio Management, segment profit in 2022 decreased compared to prior year, primarily due to the impairment on the Specialized Gas Vessels and lower share of affiliates' earnings from the RRPF affiliates, driven by an impairment charge associated with engines in Russia that RRPF does not expect to recover.

•Within Other, Trifleet Leasing's contribution to the segment profit was higher than prior year, a result of higher revenue from more tank containers on lease.

Total investment volume was $1,255.8 million in 2022, compared to $1,131.9 million in 2021, and $1,064.0 million in 2020.

2023 Outlook

Conditions in the North American railcar leasing market improved throughout 2022, and we expect conditions to remain favorable in 2023. At Rail International, we expect robust demand for our railcars in both our European and Indian businesses. The operating environment for our engine leasing business at RRPF is expected to improve as we anticipate the gradual recovery in global air travel to continue. We have a strong balance sheet and adequate access to capital, which we believe positions us well to manage our transportation assets based on current market conditions.

•We expect Rail North America's segment profit in 2023 to increase from 2022. Lease rates for railcars scheduled to renew in 2023 will likely be generally higher than expiring rates as the lease rate environment for existing railcars is expected to remain favorable. We anticipate remarketing income to remain at levels similar to 2022 as we continue to optimize our fleet. We expect the impact of inflationary pressures and higher service events and railroad repairs to result in higher maintenance expense in 2023 compared to the prior year. Finally, we anticipate interest expense to be higher in 2023 compared to what we experienced in 2022.

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•Rail International's segment profit in 2023 is expected to increase from 2022 as the demand for railcars in Europe should continue to be strong and we plan to continue to invest in the fleet. Lease revenue is expected to be higher in 2023, resulting from more railcars on lease and higher lease rates. In India, absent any potential supply chain disruptions, we anticipate significant growth in our fleet, which will also contribute to an increase in segment profit.

•We anticipate Portfolio Management's segment profit in 2023 to be higher than 2022. RRPF results are expected to be higher as the gradual improvement in air travel is expected to continue. We anticipate the contribution to segment profit from GEL, our wholly owned aircraft spare engine leasing business, to increase as a result of additional engines acquired in 2022.

Segment Operations

Segment profit is an internal performance measure used by the Chief Executive Officer to assess the profitability of each segment. Segment profit includes all revenues, expenses, pre-tax earnings from affiliates, and net gains on asset dispositions that are directly attributable to each segment. We allocate interest expense to the segments based on what we believe to be the appropriate risk-adjusted borrowing costs for each segment. Segment profit excludes selling, general and administrative expenses, income taxes, and certain other amounts not allocated to the segments.

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RAIL NORTH AMERICA

Segment Summary

Conditions in the North American railcar leasing market strengthened throughout 2022. Demand for most existing railcar types was robust, and Rail North America experienced sequential increases in absolute lease rates throughout 2022. Utilization remained strong at 99.5% at the end of the year.

The following table shows Rail North America's segment results for the years ended December 31 (in millions):

The following table shows the components of Rail North America's lease revenue for the years ended December 31 (in millions):

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Rail North America Fleet Data

The following table shows fleet activity for Rail North America railcars, excluding boxcars, for the years ended December 31:

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(1) Utilization is calculated as the number of railcars on lease as a percentage of total railcars in the fleet.

(2) The renewal success rate represents the percentage of railcars on expiring leases that were renewed with the existing lessee. The renewal success rate is an important metric because railcars returned by our customers may remain idle or incur additional maintenance and freight costs prior to being leased to new customers.

(3) Active railcars refers to the number of railcars on lease to customers. Changes in railcars on lease compared to prior years are impacted by the utilization of new railcars purchased from builders or in the secondary market and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.

(4) Average active railcars for the year is calculated using the number of active railcars at the end of each month.

As of December 31, 2022, leases for approximately 18,700 tank and freight cars and approximately 1,800 boxcars are scheduled to expire in 2023. These amounts exclude railcars on leases expiring in 2023 that have already been renewed or assigned to a new lessee.

On September 30, 2022 we entered into a new long-term railcar supply agreement with a subsidiary of Trinity Industries, Inc. ("Trinity") to purchase 15,000 newly built railcars through 2028, with an option to order up to an additional 500 railcars each year from 2023 to 2028. The agreement enables us to order a broad mix of tank and freight cars. Trinity will deliver 6,000 tank cars (1,200 per year) from 2024 through 2028. The remaining 9,000 railcars, which can be a mix of freight and tank cars, will be ordered at a rate of 1,500 railcars per order year from 2023 to 2028 and delivered under a schedule to be determined. At December 31, 2022, 682 railcars have been ordered pursuant to the terms of the agreement, none of which have been delivered.

In 2018, we amended a long-term supply agreement with Trinity to extend the term to December 2023, and we agreed to purchase 4,800 tank cars (1,200 per year) beginning in January 2020 and continuing through 2023. At December 31, 2022, 4,454 railcars have been ordered pursuant to the amended terms of the agreement, of which 3,572 railcars have been delivered.

In 2018, we entered into a multi-year railcar supply agreement with American Railcar Industries, Inc. ("ARI"), pursuant to which we agreed to purchase 7,650 newly built railcars. The order encompasses a mix of tank and freight cars to be delivered over a five-year period, beginning in April 2019 and ending in December 2023. ARI's railcar manufacturing business was acquired by a subsidiary of The Greenbrier Companies, Inc. ("Greenbrier") on July 26, 2019, and such subsidiary assumed all of ARI's obligations under our long-term supply agreement. As of December 31, 2022, 7,650 railcars have been ordered, of which 5,795 railcars have been delivered. All railcars covered under this agreement are expected to be delivered by early 2024.

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Lease Price Index

Our lease price index ("LPI") is an internally-generated business indicator that measures lease rate pricing on renewals for our North American railcar fleet, excluding boxcars. We calculate the index using the weighted-average lease rate for a group of railcar types that we believe best represents our overall North American fleet, excluding boxcars. The average renewal lease rate change is reported as the percentage change between the average renewal lease rate and the average expiring lease rate, weighted by fleet composition. The average renewal lease term is reported in months and reflects the average renewal lease term of railcar types in the LPI, weighted by fleet composition.

During 2022, the renewal rate change of the LPI was positive 23.4%, compared to negative 8.5% in 2021. Lease terms on renewals for cars in the LPI averaged 33 months in 2022 compared to 32 months in 2021.

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The following table shows fleet statistics for Rail North America boxcars for the years ended December 31:

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(1) Utilization is calculated as the number of boxcars on lease as a percentage of total boxcars in the fleet.

(2) Active boxcars refers to the number boxcars on lease to customers. Changes in boxcars on lease compared to prior years are impacted by the utilization of new boxcars purchased from builders or in the secondary market and the disposition of boxcars that were sold or scrapped, as well as the fleet utilization rate.

(3) Average active boxcars is calculated using the number of active boxcars at the end of each month.

The following table shows fleet activity for Rail North America locomotives for the years ended December 31:

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(1) Utilization is calculated as the number of locomotives on lease as a percentage of total locomotives in the fleet.

(2) Active locomotives refers to the number of locomotives on lease to customers. Changes in locomotives on lease compared to prior years are impacted by locomotives that were sold or scrapped, as well as the fleet utilization rate.

(3) Average active locomotives for the year is calculated using the number of active locomotives at the end of each month.

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Comparison of Reported Results

Segment Profit

In 2022, segment profit of $321.3 million increased 12.6% compared to $285.4 million in 2021. Segment profit in 2021 included a net gain of $5.3 million attributable to net insurance recoveries for storm damage to a maintenance facility. Excluding this gain, results for Rail North America were $41.2 million higher than 2021, resulting from higher net gains on asset dispositions and higher lease revenue. The amount and timing of disposition gains is dependent on a number of factors and will vary from year to year.

Revenues

In 2022, lease revenue increased $11.5 million, or 1.4%, driven by higher lease rates, partially offset by a smaller active fleet. Other revenue increased $4.8 million, primarily due to higher repair revenue.

Expenses

In 2022, maintenance expense increased $3.1 million. The increase was largely due to higher cost of repairs and more repairs performed by the railroads, partially offset by the absence of costs incurred at owned maintenance facilities sold in 2021 and 2022. Depreciation expense decreased $2.5 million due to fewer railcars in the fleet during the current year. Operating lease expense decreased $3.1 million, resulting from the purchase of railcars previously on operating leases. Other operating expense decreased $5.8 million due to lower switching, storage, and freight costs.

Other Income (Expense)

In 2022, net gain on asset dispositions increased $25.4 million largely due to more railcars sold. The amount and timing of disposition gains is dependent on a number of factors and will vary from year to year. Net interest expense increased $8.4 million, primarily driven by a higher average debt balance, partially offset by a lower average interest rate.

Investment Volume

During 2022, investment volume was $815.9 million compared to $574.4 million in 2021. We acquired 4,060 newly built railcars and 585 railcars in the secondary market in 2022, compared to 3,622 newly built railcars and 325 railcars in the secondary market in 2021.

Our investment volume is predominantly composed of acquired railcars, but also includes certain capitalized repairs and improvements to owned railcars and our maintenance facilities. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of railcars purchased, which may include tank cars and freight cars, as well as newly manufactured railcars or those purchased in the secondary market.

RAIL INTERNATIONAL

Segment Summary

Rail International, composed primarily of GATX Rail Europe ("GRE"), produced strong operating results in 2022. Despite a weakening global economy, demand for railcars in Europe was robust. GRE continued to experience renewal lease rate increases for most railcar types throughout 2022, and utilization was 99.3% at the end of the year. GRE also continued to grow and diversify its fleet during the year.

Our rail operations in India ("Rail India") continued to focus on investment opportunities, diversification of its fleet, and developing relationships with customers, suppliers and the Indian Railways. Rail India achieved strong operating and financial results, despite fleet growth being negatively impacted in 2022 by limited access to railcar manufacturing supply and other supply disruptions, particularly wheelsets, as a result of the Russia/Ukraine conflict and domestic market demand.

In 2022, after a thorough strategic review, we decided to exit our rail operations in Russia ("Rail Russia"). This decision was due to the impacts of the Russia/Ukraine conflict on our business and the business risks associated with the geopolitical environment resulting from that conflict. As a result, the net assets of Rail Russia were classified as held for sale and an impairment loss of $14.6 million was recognized in 2022. See "Note 10. Asset Impairments and Assets Held for Sale" in Part II, Item 8 of this Form 10-K for

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additional information. Financial results were not material to Rail International's segment profit. On January 31, 2023, we completed the sale of Rail Russia. See "Note 26. Subsequent Events" in Part II, Item 8 of this Form 10-K.

The following table shows Rail International's segment results for the years ended December 31 (in millions):

GRE Fleet Data

The following table shows fleet activity for GRE railcars for the years ended December 31:

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(1) Utilization is calculated as the number of railcars on lease as a percentage of total railcars in the fleet.

(2) Active railcars refers to the number of railcars on lease to customers. Changes in railcars on lease compared to prior years are impacted by the utilization of newly built railcars, railcars purchased in the secondary market, and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.

(3) Average active railcars for the year is calculated using the number of active railcars at the end of each month.

As of December 31, 2022, leases for approximately 9,601 railcars are scheduled to expire in 2023. This amount excludes railcars on leases expiring in 2023 that have already been renewed or assigned to a new lessee.

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Rail India Fleet Data

The following table shows fleet activity for Rail India railcars for the years ended December 31:

_______

(1) Utilization is calculated as the number of railcars on lease as a percentage of total railcars in the fleet.

(2) Active railcars refers to the number of railcars on lease to customers. Changes in railcars on lease compared to prior years are impacted by the utilization of railcars purchased and the disposition of railcars that were sold, as well as the fleet utilization rate.

(3) Average active railcars for the year is calculated using the number of active railcars at the end of each month.

Comparison of Reported Results

Foreign Currency

Rail International's reported results of operations are impacted by fluctuations in the exchange rates of the U.S. dollar versus the foreign currencies in which it conducts business, primarily the euro. In 2022, fluctuations in the value of the euro, relative to the U.S. dollar, negatively impacted lease revenue by approximately $27.5 million and segment profit, excluding other income (expense), by approximately $13.8 million compared to 2021.

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Segment Profit

In 2022, segment profit of $85.9 million decreased 18.2% compared to $105.0 million in 2021. Segment profit in 2022 included a $14.6 million impairment charge recorded as a result of the decision to exit the Rail Russia business. Excluding this impairment, results for Rail International were $4.5 million lower than 2021. The decrease was primarily due to changes in foreign exchange rates, partially offset by more railcars on lease.

Revenues

In 2022, lease revenue decreased $6.7 million, or 2.5%, due to the impact of foreign exchange rates, partially offset by more railcars on lease at GRE and Rail India. Other revenue decreased $2.3 million, driven by lower repair revenue and the impact of foreign exchange rates.

Expenses

In 2022, maintenance expense decreased $6.2 million, primarily due to the impact of foreign exchange rates. Depreciation expense decreased $4.5 million, as the impact of foreign exchange rates more than offset the impact of new railcars added to the fleet.

Other Income (Expense)

In 2022, net gain on asset dispositions decreased $13.9 million, driven by the impairment recorded as a result of the decision to exit the Rail Russia business. Other (expense) income was unfavorable $7.2 million, driven by the negative impact of changes in foreign exchange rates and higher litigation costs.

Investment Volume

During 2022, investment volume was $243.9 million, compared to $173.3 million in 2021. During 2022, GRE acquired 1,211 railcars (including 275 assembled at the GRE Ostróda, Poland facility) and Rail India acquired 1,042 railcars, compared to 1,131 railcars at GRE (including 335 assembled at the GRE Ostróda, Poland facility) and 715 railcars at Rail India in 2021.

Our investment volume is predominantly composed of acquired railcars, but may also include certain capitalized repairs and improvements to owned railcars. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of the various railcar types acquired, as well as fluctuations in the exchange rates of the foreign currencies in which Rail International conducts business.

PORTFOLIO MANAGEMENT

Segment Summary

Portfolio Management's segment profit is attributable primarily to income from the RRPF affiliates, a group of 50% owned domestic and foreign joint ventures with Rolls-Royce plc (or affiliates thereof, collectively “Rolls-Royce”), a leading manufacturer of commercial aircraft jet engines. Segment profit included earnings from the RRPF affiliates of $45.4 million for 2022, $56.5 million for 2021, and $95.5 million for 2020. In 2022, RRPF terminated leases for three aircraft spare engines leased to a Russian airline. The Russian government is prohibiting these engines from leaving the country; therefore, RRPF recorded an impairment charge associated with these three engines. GATX's 50% share of this net impairment was $15.3 million ($11.5 million after tax). Portfolio Management did not make any additional investment in the RRPF affiliates in 2022 or 2021. Dividend distributions from the RRPF affiliates totaled $46.2 million in 2022. There were no distributions in 2021.

While global air travel has improved in 2022, the operating environment for RRPF continued to be impacted by the ongoing adverse effects of COVID-19 and the uncertainty due to the Russia/Ukraine conflict.

Portfolio Management also includes GEL, our wholly owned entity that invests directly in aircraft spare engines. In 2021, GEL acquired 14 aircraft spare engines for approximately $352 million, including four engines for $120 million from the RRPF affiliates. In 2022, GEL acquired five aircraft spare engines for approximately $150 million, which are employed in an engine capacity agreement with Rolls-Royce for use in its engine maintenance programs. All engines are managed by the RRPF affiliates.

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Portfolio Management also has the Specialized Gas Vessels that are utilized to transport pressurized gases and chemicals, such as liquefied petroleum gas and ethylene, primarily on short- and medium-term spot contracts for major oil and chemical customers worldwide. In 2022, we made the decision to sell the Specialized Gas Vessels. We believe selling these vessels will better align our strategic focus. As a result of this decision, we classified the Specialized Gas Vessels as held for sale and recorded impairment losses of $34.3 million in the current year. We sold two of the vessels in 2022, and the three remaining vessels continue to be classified as held for sale as of December 31, 2022.

Portfolio Management's total asset base was $1,106.6 million at December 31, 2022, compared to $1,048.7 million at December 31, 2021.

The following table shows Portfolio Management’s segment results for the years ended December 31 (in millions):

The following table shows the net book value of Portfolio Management’s assets as of December 31 (in millions):

________

(1) Amounts shown represent the estimated net book value of assets managed for third parties and are not included in our consolidated balance sheets.

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RRPF Affiliates Engine Portfolio Data

As of December 31, 2022, the RRPF affiliates' portfolio consisted of 398 aircraft spare engines with a net book value of $4,176.5 million, compared to 407 aircraft spare engines with a net book value of $4,399.9 million at the end of 2021.

The following table shows portfolio activity for the RRPF affiliates' aircraft spare engines for the years ended December 31:

________

(1) Utilization is calculated as the number of engines on lease as a percentage of total engines in the fleet.

(2) Average leased engines for the year is calculated using the number of leased engines at the end of each month.

Comparison of Reported Results

Segment Profit

In 2022, segment profit was $14.7 million compared to $60.8 million in 2021. Segment profit in 2022 included $34.3 million of impairment charges recorded as a result of the decision to sell the Specialized Gas Vessels and a $15.3 million net impairment charge (GATX's 50% share) for aircraft spare engines in Russia that RRPF does not expect to recover. Excluding these losses, results for Portfolio Management were $3.5 million higher than 2021, driven by higher share of affiliates' earnings at the RRPF affiliates.

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Revenues

In 2022, lease revenue was $33.0 million compared to $28.1 million in 2021, due to a full year of operations at GEL for engines acquired in 2021. Marine operating revenue decreased $0.2 million, driven by the absence of revenue from the Specialized Gas Vessels sold in 2022, offset by higher utilization and charter rates from Specialized Gas Vessels throughout the year.

Expenses

In 2022, marine operating expense decreased $3.4 million, due to the absence of expenses from the two Specialized Gas Vessels sold in 2022, offset by higher repairs and maintenance costs.

Other Income (Expense)

In 2022, net (loss) gain on asset dispositions was unfavorable by $39.1 million, driven by the impairment charges recorded as a result of the decision to sell the Specialized Gas Vessels and lower residual sharing gains on managed portfolio sales in the current year.

In 2022, income from our share of affiliates' earnings decreased $11.1 million, driven by the impairment charge on aircraft spare engines in Russia that RRPF does not expect to recover. Absent this, financial results were higher in 2022, due to higher income from operations.

Investment Volume

Investment volume was $149.7 million in 2022, compared to $353.0 million in 2021. GEL acquired five aircraft spare engines in 2022, compared to 14 aircraft spare engines in 2021.

OTHER

Other comprises our Trifleet Leasing business, as well as selling, general and administrative expenses ("SG&A"), unallocated interest expense, miscellaneous income and expense not directly associated with the reporting segments, and certain eliminations.

On December 29, 2020, GATX acquired Trifleet Leasing, one of the largest tank container lessors in the world. See "Note 4. Business Combinations" in Part II, Item 8 of this Form 10-K for additional information.

In 2022, GATX executed a multi-party amended and restated settlement agreement related to its share of estimated environmental remediation costs to be incurred at a previously owned facility that was sold in 1974. This agreement establishes GATX's share of responsibility for future costs required to complete the remediation and closure of the site. As a result, GATX recorded a $5.9 million expense to establish a reserve for its share of the remaining anticipated remediation and related costs.

The following table shows components of Other for the years ended December 31 (in millions):

Trifleet Leasing Summary

The tank container leasing market was strong in 2022 and demand for tank containers was robust. Utilization increased to 93.1% at December 31, 2022.

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Trifleet Leasing Tank Container Data

The following table shows fleet statistics for Trifleet Leasing's tank containers for the years ended December 31:

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(1) Utilization is calculated as the number of tank containers on lease as a percentage of total tank containers in the fleet.

SG&A, Unallocated Interest and Other

SG&A decreased $3.3 million in 2022, driven by lower employee compensation expenses, including lower share-based compensation expense, and the impact of foreign exchange rates, partially offset by higher discretionary expenses and information technology costs.

Unallocated interest income (expense) (the difference between external interest expense and interest expense allocated to the reporting segments) in any year is affected by our consolidated leverage position, the timing of debt issuances and investing activities, and intercompany allocations.

In 2022, other (expense) income, including eliminations, increased $7.8 million compared to 2021, driven by higher pension-related expenses, including a settlement charge recorded during the current year, and higher environmental remediation costs, partially offset by the absence of the write-off of unamortized deferred financing costs associated with the early redemption of debt in the prior year.

Consolidated Income Taxes

See "Note 13. Income Taxes" in Part II, Item 8 of this Form 10-K for additional information on income taxes.

CHANGE IN NET OPERATING ASSETS AND FACILITIES

The following table shows changes in the net operating assets and facilities as of December 31 (in millions):

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CASH FLOW DISCUSSION

We generate a significant amount of cash from operating activities and investment portfolio proceeds. We also access domestic and international capital markets by issuing unsecured or secured debt and commercial paper. We use these resources, along with available cash balances, to fulfill our debt, lease, and dividend obligations, to support our share repurchase programs, and to fund portfolio investments and capital additions. We primarily use cash from operations to fund daily operations. The timing of asset dispositions and changes in working capital impact cash flows from portfolio proceeds and operations. As a result, these cash flow components may vary materially from year to year.

As of December 31, 2022, we had an unrestricted cash balance of $303.7 million and investments in short-term U.S. Treasury Obligations of $148.5 million. We also have a $250 million 3-year unsecured revolving credit facility in the United States that matures in 2025 and a $600 million, 5-year unsecured revolving credit facility in the United States that matures in 2027, both of which were fully available as of December 31, 2022.

The following table shows our cash flows from operating, investing and financing activities for the years ended December 31 (in millions):

Net Cash Provided by Operating Activities

Net cash provided by operating activities of $533.5 million increased $26.3 million compared to 2021. Comparability among reporting periods is impacted by the timing of changes in working capital items. Specifically, lower cash payments for operating leases and higher affiliate dividends received in the current year were partially offset by higher cash payments for income taxes, interest, and other operating expenses.

Net Cash Used in Investing Activities

The following table shows our principal sources and uses of cash flows from investing activities for the years ended December 31 (in millions):

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(1) Portfolio investments and capital additions primarily consist of purchases of operating assets and capitalized asset improvements.

(2) Portfolio proceeds primarily consist of proceeds from sales of operating assets.

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The following table shows portfolio investments and capital additions by segment for the years ended December 31 (in millions):

The increase in portfolio investments and capital additions of $123.9 million in the year ended December 31, 2022 is primarily due to more railcars acquired at Rail North America and Rail International and more tank containers acquired at Trifleet Leasing, partially offset by fewer aircraft spare engines acquired at GEL. The timing of investments depends on purchase commitments, transaction opportunities, and market conditions.

The following table shows portfolio proceeds for the years ended December 31 (in millions):

The increase in portfolio proceeds of $82.5 million in the year ended December 31, 2022 compared to the year ended December 31, 2021 is primarily due to proceeds from the sale of two Specialized Gas Vessels at Portfolio Management and more railcars sold at Rail North America.

The following table shows other investing activity for the years ended December 31 (in millions):

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(1) Proceeds from sales of other assets for all periods were primarily related to railcar scrapping.

(2) Acquisition of short-term U.S. Treasury Obligations with an original maturity date of over 90 days.

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Net Cash Provided by (Used in) Financing Activities

The following table shows net cash provided by (used in) financing activities for the years ended December 31 (in millions):

________

(1) In 2022, we purchased 21 railcars that were previously leased, compared to 2,329 railcars in 2021.

(2) During 2022, we repurchased 0.5 million shares of common stock for $47.2 million, compared to 0.1 million shares of common stock repurchased for $13.1 million in 2021.

(3) In 2022, we issued long-term debt of $860.7 million for net proceeds of $848.3 million, and made principal payments of $250.0 million.

The following table shows the details of our long-term debt issuances in 2022 ($ in millions):

________

(1) Denominated in euros, but presented in U.S. dollars in this table. In 2022, we increased our existing €100 million term loan in Europe to €110 million and extended the loan for five years, while converting from a fixed rate to a EURIBOR based floating rate.

(2) Floating interest rate at December 31, 2022.

LIQUIDITY AND CAPITAL RESOURCES

General

We fund our investments and meet our debt, lease, and dividend obligations using our available cash balances, as well as cash generated from operating activities, sales of assets, commercial paper issuances, committed revolving credit facilities, distributions from affiliates, and issuances of secured and unsecured debt. We primarily use cash from operations to fund daily operations. We use both domestic and international capital markets and banks to meet our debt financing needs.

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Material Cash Obligations

The following table shows our material cash obligations, including debt principal and related interest payments, lease payments, and purchase commitments at December 31, 2022 (in millions):

__________

(1) For floating rate debt, future interest payments are based on the applicable interest rate as of December 31, 2022.

(2) Primarily railcar purchase commitments. The amounts shown for all years are based on management's estimates of the timing, anticipated car types, and related costs of railcars to be purchased under its agreements. For additional details on our purchase agreements, refer to the discussion of Rail North America operating results within this section.

2023 Liquidity Outlook

In addition to our contractual obligations, expenditures in 2023 may also include the purchase of railcars, tank containers, and aircraft spare engines and other discretionary capital spending for opportunistic asset purchases or strategic investments. We plan to fund these expenditures in 2023 using available cash at December 31, 2022 in combination with cash from operations, portfolio proceeds, and long-term debt issuances. We also have access to our revolving credit facilities if needed.

Contractual Cash Receipts

Information regarding our contractual cash receipts arising from future rental receipts from noncancelable operating leases and from our finance leases as of December 31, 2022 is presented in "Note 6. Leases" within Item 8 of this Form 10-K.

Debt

The following table shows the carrying value of our debt and lease obligations by major component as of December 31 (in millions):

As of December 31, 2022, our outstanding debt had a weighted-average remaining term of 8.6 years and a weighted-average interest rate of 3.72%, compared to 9.0 years and 3.79% at December 31, 2021. See "Note 8. Debt" in Part II, Item 8 of this Form 10-K.

Short-Term Borrowings

We primarily use short-term borrowings as a source of working capital and to temporarily fund differences between our operating cash flows and portfolio proceeds, and our capital investments and debt maturities. We do not maintain or target any particular level of short-term borrowings on a permanent basis. Rather, we will temporarily utilize short-term borrowings at levels we deem appropriate until we decide to pay down these balances.

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The following table shows additional information regarding our short-term borrowings:

__________

(1)Short-term borrowings in Europe are composed of borrowings under bank credit facilities.

Credit Lines and Facilities

We have a $600 million, 5-year unsecured revolving credit facility in the United States. In 2022, we entered into an amendment, which extended the maturity on this facility by one year from May 2026 to May 2027 and replaced LIBOR with Term SOFR. This credit facility contains one additional extension option. As of December 31, 2022, the full $600 million was available under this facility. Additionally, we have a $250 million 3-year unsecured revolving credit facility in the United States. In 2022, we also entered into an amendment to this facility to extend the maturity by one year from May 2024 to May 2025 and to replace LIBOR with Term SOFR. This credit facility contains one additional extension option as well. As of December 31, 2022, the full $250 million was available under this facility.

Our European subsidiaries have unsecured credit facilities with an aggregate limit of €35.0 million. As of December 31, 2022, €18.9 million was available under these credit facilities.

Delayed Draw Term Loans

On September 12, 2022, we executed a delayed draw term loan agreement in India which provided for a 5-year unsecured term loan in the aggregate principal amount of up to 2.3 billion Indian Rupees ($27.8 million as of December 31, 2022). Advances are allowed through March 31, 2023 pursuant to the terms of the agreement and any amounts borrowed and repaid may not be re-borrowed. The amounts borrowed under the loan agreement are required to be repaid no later than five years from the first drawdown date. As of December 31, 2022, no amount was drawn on this loan.

On December 14, 2020, we executed a delayed draw term loan agreement (“Term Loan”) which provided for a 3-year term loan in the aggregate principal amount of up to $500 million. Advances were allowed from December 14, 2020 through April 17, 2021 pursuant to the terms of the agreement and any amounts borrowed and repaid could not be re-borrowed. The amounts borrowed under the Term Loan agreement are required to be repaid no later than December 14, 2023. In 2021, we drew $384 million on the Term Loan, terminated the remaining unused commitment of $116 million, and subsequently repaid $134 million of the outstanding amount. As of December 31, 2022, $250 million was drawn on the Term Loan.

Restrictive Covenants

Our credit facilities and certain other debt agreements contain various restrictive covenants. See "Note 8. Debt" in Part II, Item 8 of this Form 10-K.

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Credit Ratings

The global capital market environment and outlook may affect our funding options and our financial performance. Our access to capital markets at competitive rates depends on our credit rating and rating outlook, as determined by rating agencies. As of December 31, 2022, our long-term unsecured debt was rated BBB by Standard & Poor's and Baa2 by Moody’s Investor Service and our short-term unsecured debt was rated A-2 by Standard & Poor's and P-2 by Moody’s Investor Service. Our rating outlook from both agencies was stable. In January 2023, Fitch Ratings, Inc. assigned our long-term unsecured debt a rating of BBB+ and our short-term unsecured debt a rating of F-2. Our rating outlook was stable.

Leverage

Leverage is expressed as a ratio of debt (including debt and lease obligations, net of unrestricted cash and short-term investments) to equity. The following table shows the components of recourse leverage as of December 31 (in millions, except recourse leverage ratio):

________

(1) Includes recourse debt, commercial paper and bank credit facilities, and operating and finance lease obligations, net of unrestricted cash and short-term investments.

(2) Calculated as total recourse debt / shareholders' equity.

Shelf Registration Statement

During 2022, we filed an automatic shelf registration statement that enables us to issue debt securities and pass-through certificates. The registration statement is effective for three years and does not limit the amount of debt securities and pass-through certificates we can issue.

Commercial Commitments

We have entered into various commercial commitments, including standby letters of credit, performance bonds, and guarantees related to certain transactions. These commercial commitments require us to fulfill specific obligations in the event of third-party demands. Similar to our balance sheet investments, these commitments expose us to credit, market, and equipment risk. Accordingly, we evaluate these commitments and other contingent obligations using techniques similar to those we use to evaluate funded transactions.

We are parties to standby letters of credit and performance bonds, which primarily relate to contractual obligations and general liability insurance coverages. No material claims have been made against these obligations, and no material losses are anticipated. We also guarantee payment by an affiliate for final settlement of certain derivatives if they are in a liability position at expiration. The amount of the payment is ultimately determined by the value of the derivative upon final settlement.

Our commercial commitments at December 31, 2022 are presented in "Note 15. Commercial Commitments" within Item 8 of this Annual Report.

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Defined Benefit Plan Contributions

In 2022, we contributed $16.2 million to our defined benefit pension plans and other post-retirement benefit plans. In 2023, we expect to contribute approximately $7.6 million. As of December 31, 2022, our funded pension plans in the aggregate were 102.6% funded. Additional contributions will depend primarily on plan asset investment returns and actuarial experience, and subject to the impact of these factors, we may make additional material plan contributions.

GATX Common Stock Repurchases

On January 25, 2019, our board of directors approved a $300.0 million share repurchase program, pursuant to which we are authorized to purchase shares of our common stock in the open market, in privately negotiated transactions, or otherwise, including pursuant to Rule 10b5-1 plans. The share repurchase program does not have an expiration date, does not obligate the Company to repurchase any dollar amount or number of shares of common stock, and may be suspended or discontinued at any time. The timing of share repurchases will be dependent on market conditions and other factors. During 2022, we repurchased 0.5 million shares of common stock for $47.2 million, excluding commissions, compared to 0.1 million shares repurchased for $13.1 million, excluding commissions, in 2021. As of December 31, 2022, $89.6 million remained available under the repurchase authorization.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in conformity with GAAP, which requires us to use judgment in making estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses, as well as information in the related disclosures. We regularly evaluate our estimates and judgments based on historical experience, market indicators, and other relevant factors and circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Operating Assets

We state operating assets, including assets acquired under finance leases, at cost and depreciate them over their estimated economic useful lives to an estimated residual value using the straight-line method. We determine the economic useful life based on our estimate of the period over which the asset will generate revenue. For the majority of our operating assets, the economic useful life is greater than 30 years. The residual values are based on historical experience and economic factors. We periodically review the appropriateness of our estimates of useful lives and residual values based on changes in economic circumstances and other factors. Changes in these estimates would result in a change in future depreciation expense.

Lease Classification

We analyze all new and modified leases to determine whether we should classify the lease as an operating or finance lease. Our lease classification analysis relies on certain assumptions that require judgment, such as the asset's fair value, the asset's estimated residual value, the interest rate implicit in the lease, and the asset's economic useful life. While most of our leases are classified as operating leases, changes in the assumptions we use could result in a different lease classification, which could change the impacts of the lease transactions on our results of operations and financial position. See "Note 6. Leases" in Part II, Item 8 of this Form 10-K.

Impairment of Long-Lived Assets

We review long-lived assets, such as operating assets, right-of-use assets, and facilities, for impairment annually, or whenever circumstances indicate that the carrying amount of those assets may not be recoverable. We evaluate the recoverability of assets to be held and used by comparing the carrying amount of the asset to the undiscounted future net cash flows we expect the asset to generate. We base estimated future cash flows on a number of assumptions, including lease rates, lease term (including renewals), freight rates and volume, operating costs, the life of the asset, and final disposition proceeds. If we determine an asset is impaired, we recognize an impairment loss equal to the amount by which the carrying amount exceeds the asset’s fair value. We classify assets we plan to sell or otherwise dispose of as held for sale, provided they meet specified accounting criteria, and we record those assets at the lower of their carrying amount or fair value less costs to sell. See "Note 10. Asset Impairments and Assets Held for Sale" in Part II, Item 8 of this Form 10-K.

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Impairment of Investments in Affiliated Companies

We review the carrying amount of our investments in affiliates annually, or whenever circumstances indicate that their value may have declined. If management determines that indicators of impairment are present for an investment, we perform an analysis to estimate the fair value of that investment. Active markets do not typically exist for our affiliate investments and as a result, we may estimate fair value using a discounted cash flow analysis at the investee level, price-earnings ratios based on comparable businesses, or other valuation techniques that are appropriate for the particular circumstances of the affiliate. For all fair value estimates, we use observable inputs whenever possible and appropriate.

Once we make an estimate of fair value, we compare the estimate of fair value to the investment’s carrying value. If the investment’s estimated fair value is less than its carrying value, then we consider the investment impaired. If an investment is impaired, we assess whether the impairment is other-than-temporary. We consider factors such as the expected operating results for the near future, the length of the economic life cycle of the underlying assets of the investee, and our ability to hold the investment through the end of the underlying assets’ useful life to determine if the impairment is other-than-temporary. We may also consider actions we anticipate the investee will take to improve its business prospects if it seems probable the investee will take those actions. If we determine an investment to be only temporarily impaired, we do not record an impairment loss. Alternatively, if we determine an impairment is other-than-temporary, we record a loss equal to the difference between the estimated fair value of the investment and its carrying value. See "Note 7. Investments in Affiliated Companies."

Impairment of Goodwill

We review the carrying amount of our goodwill annually, or if circumstances indicate an impairment may have occurred. We perform the impairment review at the reporting unit level, which is one level below an operating segment. The goodwill impairment test performed is a two-tiered approach and requires us to make certain judgments to determine the assumptions we use in the calculation. We first complete a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit exceeds its carrying value. If necessary, the fair value is then compared to its carrying value, including goodwill. When estimating the fair value of the reporting unit, we use a discounted cash flow model and base our estimates of future cash flows on revenue and expense forecasts and include assumptions for future growth. We also consider observable multiples of book value and earnings for companies that we believe are comparable to the applicable reporting units. If the estimated fair value is less than the carrying amount, we record an impairment loss for the difference. See "Note 17. Goodwill" in Part II, Item 8 of this Form 10-K.

Pension and Post-Retirement Benefits Assumptions

We use actuarial assumptions to calculate pension and other post-retirement benefit obligations and related costs. The discount rate and the expected return on plan assets are two assumptions that influence the plan expense and liability measurement. Other assumptions involve demographic factors such as expected retirement age, mortality, employee turnover, health care cost trends, and the rate of compensation increases.

We use a discount rate to calculate the present value of expected future pension and post-retirement cash flows as of the measurement date. The discount rate is based on yields for high-quality, long-term bonds with durations similar to the projected benefit obligation. We base the expected long-term rate of return on plan assets on current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. We evaluate these assumptions annually and make adjustments as required in accordance with changes in underlying market conditions, valuation of plan assets, or demographics. Changes in these assumptions may increase or decrease periodic benefit plan expense as well as the carrying value of benefit plan obligations. See "Note 11. Pension and Other Post-Retirement Benefits" in Part II, Item 8 of this Form 10-K.

Share-Based Compensation

We grant equity awards to certain employees and non-employee directors in the form of non-qualified stock options, stock appreciation rights, restricted stock, performance shares, and phantom stock. We recognize compensation expense for our equity awards over the applicable service period for each award, based on the award’s grant date fair value. We use the Black-Scholes options valuation model to calculate the grant date fair value of stock options and stock appreciation rights. This model requires us to make certain assumptions that affect the amount of compensation expense we will record. The assumptions we use in the model include the expected stock price volatility (based on the historical volatility of our stock price), the risk-free interest rate (based on the treasury yield curve), the expected life of the equity award (based on historical exercise patterns and post-vesting termination behavior), and the dividend equivalents we expect to pay during the estimated life of the equity award since our stock options and stock appreciation rights are dividend participating. We base the fair value of other equity awards on our stock price on the grant date. We recognize forfeitures when they occur. See "Note 12. Share-Based Compensation" in Part II, Item 8 of this Form 10-K.

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Income Taxes

Our operations are subject to taxes in the United States, various states, and foreign countries, and as a result, we may be subject to audit in all of these jurisdictions. Tax audits may involve complex issues and disagreements with taxing authorities that could require several years to resolve. GAAP requires that we presume the relevant tax authority will examine uncertain income tax positions. We must determine whether, based on the technical merits of our position, it is more likely than not that our uncertain income tax positions will be sustained by taxing authorities upon examination, which may include related appeals or litigation processes. We must then evaluate income tax positions that meet the "more likely than not" recognition threshold to determine the probable amount of benefit we would recognize in the financial statements. Establishing accruals for uncertain tax benefits requires us to make estimates and assessments with respect to the ultimate outcome of tax audit issues for amounts recorded in the financial statements. The ultimate resolution of uncertain tax benefits may differ from our estimates, potentially impacting our financial position, results of operations, or cash flows.

We evaluate the need for a deferred tax asset valuation allowance by assessing the likelihood that we will realize tax assets, including net operating loss and tax credit carryforward benefits. Our assessment of whether a valuation allowance is required involves judgment, including forecasting future taxable income and evaluating tax planning initiatives, if applicable.

We expect to continue to reinvest foreign earnings outside the United States indefinitely. If future earnings are repatriated to the United States, or if we expect such earnings to be repatriated, a provision for additional taxes may be required. Under provisions of the territorial tax system, repatriated earnings are generally exempt from United States income taxation, however, incremental income taxes may occur from withholding taxes, foreign exchange gains, or other taxable gains recognized in connection with tax basis differences in our foreign investments. The ultimate tax cost of repatriating such earnings will depend on tax laws in effect and other circumstances at that time. See "Note 13. Income Taxes" in Part II, Item 8 of this Form 10-K.

NEW ACCOUNTING PRONOUNCEMENTS

See "Note 2. Accounting Changes" in Part II, Item 8 of this Form 10-K for a summary of new accounting pronouncements that may impact our business.

NON-GAAP FINANCIAL MEASURES

In addition to financial results reported in accordance with GAAP, we compute certain financial measures using non-GAAP components, as defined by the SEC. These measures are not in accordance with, or a substitute for, GAAP, and our financial measures may be different from non-GAAP financial measures used by other companies. We have provided a reconciliation of our non-GAAP components to the most directly comparable GAAP components.

Reconciliation of Non-GAAP Components Used in the Computation of Certain Financial Measures

Net Income Measures

We exclude the effects of certain tax adjustments and other items for purposes of presenting net income, diluted earnings per share, and return on equity because we believe these items are not attributable to our business operations. Management utilizes net income, excluding tax adjustments and other items, when analyzing financial performance because such amounts reflect the underlying operating results that are within management’s ability to influence. Accordingly, we believe presenting this information provides investors and other users of our financial statements with meaningful supplemental information for purposes of analyzing year-to-year financial performance on a comparable basis and assessing trends.

The following tables show our net income, diluted earnings per share, and return on equity, excluding tax adjustments and other items for the years ended December 31 (in millions, except per share data):

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\

(*) Sum of individual components may not be additive due to rounding.

_______

(1)    In 2022, we made the decision to exit our rail business in Russia. As a result, we recorded losses associated with the impairment of the net assets.

(2)    In 2022, we made the decision to sell the Specialized Gas Vessels. As a result, we recorded losses associated with the impairments of these assets.

(3)    Reserve recorded as part of an executed agreement for anticipated remediation costs at a previously owned property, sold in 1974.

(4)    Net gain from insurance recoveries for storm damage to a maintenance facility at Rail North America.

(5)    Write-off of unamortized deferred financing costs associated with the early redemption of our $150 million 5.625% Senior Notes due 2066.

(6)    Deferred income tax adjustment due to an enacted corporate income tax rate reduction in Austria in 2022.

(7)    Impairment losses related to aircraft spare engines in Russia that RRPF does not expect to recover.

(8)    Deferred income tax adjustments due to an enacted corporate income tax rate increase in the United Kingdom in 2021 and the elimination of a previously announced corporate income tax rate reduction in the United Kingdom in 2020.

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