# GATX CORP (GATX) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GATX CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/40211/000004021124000023/gmt-20231231.htm
Accession: 0000040211-24-000023
Filing date: 2024-02-16
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/GATX/
All MD&A years: /company/GATX/mda/
Previous year: /company/GATX/mda/fy2022/ (FY 2022)
Next year: /company/GATX/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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") are reported in the Other segment.

In 2023, we sold our rail business in Russia ("Rail Russia"). See "Note 10. Asset Impairments and Assets Held for Sale" in Part II, Item 8 of this Form 10-K for further information.

In 2023, we sold the three remaining liquefied gas-carrying vessels (the "Specialized Gas Vessels") within the Portfolio Management segment. We sold two vessels in 2022.

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 2022 to 2021 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, 2022, as filed with the SEC on February 16, 2023.

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DISCUSSION OF OPERATING RESULTS

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Segment Revenues"],["Rail North America","$","982.7","","","$","908.0","","","$","891.7"],["Rail International","309.5","","","275.3","","","284.3"],["Portfolio Management","77.2","","","53.6","","","47.7"],["Other","41.5","","","36.1","","","33.7"],["","$","1,410.9","","","$","1,273.0","","","$","1,257.4"],["Segment Profit (Loss)"],["Rail North America","$","307.3","","","$","321.3","","","$","285.4"],["Rail International","113.4","","","85.9","","","105.0"],["Portfolio Management","106.4","","","14.7","","","60.8"],["Other","29.2","","","(3.9)","","","(1.3)"],["","556.3","","","418.0","","","449.9"],["Less:"],["Selling, general and administrative expense","212.7","","","195.0","","","198.3"],["Income taxes ($25.7, $12.3 and $55.3 related to affiliates' earnings)","84.4","","","67.1","","","108.5"],["Net Income (GAAP)","$","259.2","","","$","155.9","","","$","143.1"],["Net income, excluding tax adjustments and other items (non-GAAP) (1)","$","257.6","","","$","217.7","","","$","182.2"],["Diluted earnings per share (GAAP)","$","7.12","","","$","4.35","","","$","3.98"],["Diluted earnings per share, excluding tax adjustments and other items (non-GAAP) (1)","$","7.07","","","$","6.07","","","$","5.06"],["Return on equity (GAAP)","12.0","%","","7.7","%","","7.2","%"],["Return on equity, excluding tax adjustments and other items (non-GAAP) (1)","12.0","%","","10.8","%","","9.2","%"],["Investment Volume","$","1,665.0","","","$","1,255.8","","","$","1,131.9"]]
[[/GREPCENT_TABLE]]

_________

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

2023 Summary

Net income was $259.2 million, or $7.12 per diluted share, for 2023 compared to $155.9 million, or $4.35 per diluted share, for 2022, and $143.1 million, or $3.98 per diluted share, for 2021. Results for 2023 included a net positive impact of $1.6 million ($0.05 per diluted share) from tax adjustments and other items, compared to a net negative impact of $61.8 million ($1.72 per diluted share) from tax adjustments and other items in 2022 and a net negative impact of $39.1 million ($1.08 per diluted share) from tax adjustments and other items in 2021 (see "Non-GAAP Financial Measures" at the end of this item for further details).

•At Rail North America, segment profit in 2023 was lower than prior year. The decrease was primarily attributable to higher maintenance and interest expenses, partially offset by higher lease revenue.

•At Rail International, segment profit in 2023 was higher than prior year due to the absence of the impairment of Rail Russia recorded in the prior year and higher lease revenue from more railcars on lease and higher lease rates, partially offset by higher maintenance and interest expenses.

•At Portfolio Management, segment profit in 2023 increased compared to prior year due to higher earnings at the RRPF affiliates, higher results from GATX Engine Leasing ("GEL") operations, and the impact of impairments recorded in 2022 and 2023 for the Specialized Gas Vessels and in 2022 for engines in Russia that RRPF does not expect to recover.

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•Within Other, Trifleet's segment profit decreased due to higher maintenance and interest expenses, partially offset by higher lease revenue, resulting from more tank containers in the fleet, and higher repair revenue.

Total investment volume was $1,665.0 million in 2023, compared to $1,255.8 million in 2022, and $1,131.9 million in 2021.

2024 Outlook

Conditions in the North American railcar leasing market remained strong in 2023, and we expect favorable conditions to continue in 2024. At Rail International, we expect strong demand for our railcars in both our European and Indian businesses. The operating environment for our engine leasing businesses at RRPF and our owned GEL operations is strong, as demand for global air travel continues to recover to pre-pandemic levels and beyond. 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 2024 to increase from 2023. Lease rates for railcars scheduled to renew in 2024 will likely be generally higher than expiring rates as the lease rate environment for existing railcars is expected to remain favorable. The increasing lease rates, along with new additions to the fleet, should generate higher lease revenue in 2024. We anticipate remarketing income to be slightly lower than 2023, but we continue to see a strong secondary market. We expect the impact of slightly higher regulatory compliance work, offset by a benefit from efficiencies in our owned maintenance network to result in modestly higher maintenance expense in 2024 compared to the prior year. Finally, we anticipate interest expense to be higher in 2024 compared to what we experienced in 2023.

.

•Rail International's segment profit in 2024 is expected to increase from 2023, driven by continued growth in both our European and India lease fleets. Demand for railcars in Europe should continue to be solid, and we plan to continue to invest in the fleet. Lease revenue is expected to be higher in 2024, resulting from more railcars on lease and higher lease rates. In India, we anticipate significant growth again in our fleet this coming year, which will also contribute to an increase in segment profit.

•We anticipate Portfolio Management's segment profit in 2024 to be higher than 2023. We expect an increase in the contribution to segment profit from GEL, our wholly owned aircraft spare engine leasing business, as a result of additional aircraft spare engines acquired during 2023. In addition, RRPF results are expected to be higher as a result of continued improvement in global air travel.

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

The railcar leasing environment in North America remains robust, and demand for existing railcars was strong for most railcar types throughout 2023. Rail North America capitalized on the favorable market conditions by successfully increasing renewal lease rates and extending lease terms, while maintaining high fleet utilization throughout the year. Utilization was 99.3% at the end of the year.

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Revenues"],["Lease revenue","$","888.8","","","$","826.0","","","$","814.5"],["Other revenue","93.9","","","82.0","","","77.2"],["Total Revenues","982.7","","","908.0","","","891.7"],["Expenses"],["Maintenance expense","276.6","","","238.5","","","235.4"],["Depreciation expense","265.9","","","258.6","","","261.1"],["Operating lease expense","36.0","","","36.1","","","39.2"],["Other operating expense","25.9","","","24.5","","","30.3"],["Total Expenses","604.4","","","557.7","","","566.0"],["Other Income (Expense)"],["Net gain on asset dispositions","120.5","","","119.7","","","94.3"],["Interest expense, net","(182.9)","","","(144.6)","","","(136.2)"],["Other (expense) income","(8.0)","","","(4.6)","","","1.6"],["Share of affiliates' pre-tax (loss) earnings","(0.6)","","","0.5","","","\u2014"],["Segment Profit","$","307.3","","","$","321.3","","","$","285.4"],["Investment Volume","$","976.9","","","$","815.9","","","$","574.4"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Railcars","$","805.5","","","$","740.7","","","$","720.0"],["Boxcars","57.2","","","59.5","","","67.9"],["Locomotives","26.1","","","25.8","","","26.6"],["Total","$","888.8","","","$","826.0","","","$","814.5"]]
[[/GREPCENT_TABLE]]

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Rail North America Fleet Data

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Beginning balance","100,954","","","101,570","","","103,745"],["Railcars added","4,653","","","3,712","","","3,371"],["Railcars scrapped","(1,286)","","","(2,133)","","","(3,076)"],["Railcars sold","(3,154)","","","(2,195)","","","(2,470)"],["Ending balance","101,167","","","100,954","","","101,570"],["Utilization rate at year end (1)","99.3","%","","99.5","%","","99.2","%"],["Renewal success rate (2)","84.1","%","","85.5","%","","82.7","%"],["Active railcars at year end (3)","100,498","","","100,396","","","100,719"],["Average active railcars (4)","100,217","","","100,444","","","100,769"]]
[[/GREPCENT_TABLE]]

_______

(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, 2023, leases for approximately 19,400 tank and freight cars and approximately 1,900 boxcars are scheduled to expire in 2024. These amounts exclude railcars on leases expiring in 2024 that have already been renewed or assigned to a new lessee.

In 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, 2023, 2,995 railcars have been ordered pursuant to the terms of the agreement, of which 890 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, 2023, all 4,800 railcars have been ordered pursuant to the amended terms of the agreement, of which 4,621 railcars have been delivered. The remaining railcars covered under this agreement are expected to be delivered by early 2024.

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 Greenbrier on July 26, 2019, and such subsidiary assumed all of ARI's obligations under our long-term supply agreement. As of December 31, 2023, all 7,650 railcars have been ordered, of which 7,271 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 renewal activity for our North American railcar 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. The average renewal lease term is reported in months and reflects the average renewal lease term in the LPI.

In 2023, we modified the methodology of the LPI calculation to more consistently reflect actual trends in renewal lease rates and renewal lease terms across the North American non-boxcar fleet. Under the modified methodology, the LPI calculation includes all renewal activity based on a 12-month trailing average, and the renewals are weighted by the count of all renewals during the reporting period. We believe this modification provides investors and other constituents with a more complete representation of lease rate and term performance. The LPI metrics presented below reflect the revised calculation for all periods presented.

During 2023, the renewal rate change of the LPI was positive 33.5%, compared to positive 24.4% in 2022. Lease terms on renewals for cars in the LPI averaged 65 months in 2023 compared to 52 months in 2022.

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Beginning balance","8,663","","","12,946","","","14,315"],["Boxcars added","1,248","","","543","","","963"],["Boxcars scrapped","(459)","","","(230)","","","(933)"],["Boxcars sold","(141)","","","(4,596)","","","(1,399)"],["Ending balance","9,311","","","8,663","","","12,946"],["Utilization rate at year end (1)","100.0","%","","99.9","%","","99.7","%"],["Active boxcars at year end (2)","9,310","","","8,657","","","12,909"],["Average active boxcars (3)","8,944","","","10,060","","","12,929"]]
[[/GREPCENT_TABLE]]

_______

(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 for the year is calculated using the number of active boxcars at the end of each month.

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Beginning balance","544","","","577","","","645"],["Locomotives added, net of scrapped or sold","(21)","","","(33)","","","(68)"],["Ending balance","523","","","544","","","577"],["Utilization rate at year end (1)","88.3","%","","89.3","%","","89.8","%"],["Active locomotives at year end (2)","462","","","486","","","518"],["Average active locomotives (3)","472","","","496","","","521"]]
[[/GREPCENT_TABLE]]

_______

(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 2023, segment profit of $307.3 million decreased 4.4% compared to $321.3 million in 2022. The decrease was primarily driven by higher interest and maintenance expenses, partially offset by higher lease revenue.

Revenues

In 2023, lease revenue increased $62.8 million, or 7.6%, driven by higher lease rates. Other revenue increased $11.9 million, primarily due to higher repair revenue.

Expenses

In 2023, maintenance expense increased $38.1 million, driven by more repair and regulatory compliance events, more repairs performed by the railroads, and general inflationary pressures. Depreciation expense increased $7.3 million due to the timing of new railcar investments and dispositions. Other operating expense increased $1.4 million due to higher switching and freight costs, partially offset by lower storage costs.

Other Income (Expense)

In 2023, net gain on asset dispositions increased $0.8 million due to higher net remarketing gains, partially offset by lower net scrapping gains. The amount and timing of disposition gains is dependent on a number of factors and may vary materially from year to year. Interest expense increased $38.3 million, driven by a higher average debt balance and a higher average interest rate. Other (expense) income was unfavorable $3.4 million, driven by higher legal costs, partially offset by settlement proceeds received in 2023.

Investment Volume

During 2023, investment volume was $976.9 million compared to $815.9 million in 2022. We acquired 3,835 newly built railcars and purchased 1,934 railcars in the secondary market in 2023, compared to 4,060 newly built railcars and 585 railcars in the secondary market in 2022.

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"), performed well in 2023 as it maintained solid fleet utilization and continued to experience higher renewal lease rates compared to expiring rates for most railcar types. GRE also continued to grow and diversify its fleet during the year. Utilization was 95.9% at the end of the year.

Our rail operations in India ("Rail India") achieved strong operating results and continued to grow and diversify its fleet during 2023. Rail India continued to focus on investment opportunities, diversification of its fleet, and developing relationships with customers, suppliers and the Indian Railways. Demand for railcars in India was robust, driven by continued growth in the economy and infrastructure development. Utilization was 100% at the end of the year.

In 2023, we sold Rail Russia and recorded a gain of $0.3 million upon completion of the sale. In 2022, the net assets of Rail Russia were classified as held for sale and an impairment loss of $14.6 million was recognized. See "Note 10. Asset Impairments and Assets Held for Sale" in Part II, Item 8 of this Form 10-K for additional information. Financial results were not material to Rail International's segment profit.

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Revenues"],["Lease revenue","$","296.6","","","$","266.2","","","$","272.9"],["Other revenue","12.9","","","9.1","","","11.4"],["Total Revenues","309.5","","","275.3","","","284.3"],["Expenses"],["Maintenance expense","64.1","","","51.4","","","57.6"],["Depreciation expense","68.2","","","69.1","","","73.6"],["Other operating expense","10.4","","","8.3","","","9.0"],["Total Expenses","142.7","","","128.8","","","140.2"],["Other Income (Expense)"],["Net gain (loss) on asset dispositions","7.0","","","(11.2)","","","2.7"],["Interest expense, net","(56.2)","","","(45.6)","","","(45.2)"],["Other (expense) income","(4.2)","","","(3.8)","","","3.4"],["Segment Profit","$","113.4","","","$","85.9","","","$","105.0"],["Investment Volume","$","382.4","","","$","243.9","","","$","173.3"]]
[[/GREPCENT_TABLE]]

GRE Fleet Data

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Beginning balance","28,005","","","27,109","","","26,343"],["Railcars added","1,695","","","1,211","","","1,131"],["Railcars scrapped or sold","(484)","","","(315)","","","(365)"],["Ending balance","29,216","","","28,005","","","27,109"],["Utilization rate at year end (1)","95.9","%","","99.3","%","","98.7","%"],["Active railcars at year end (2)","28,004","","","27,801","","","26,754"],["Average active railcars (3)","27,947","","","27,288","","","26,240"]]
[[/GREPCENT_TABLE]]

_______

(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.

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The decline in GRE's fleet utilization in 2023 was primarily due to weakness in the intermodal market. At December 31, 2023, GRE owned 2,130 intermodal railcars. As of December 31, 2023, leases for approximately 9,625 railcars are scheduled to expire in 2024. This amount excludes railcars on leases expiring in 2024 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 and statistics for Rail India railcars for the years ended December 31:

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Beginning balance","5,872","","","4,830","","","4,156"],["Railcars added","2,933","","","1,042","","","715"],["Railcars scrapped or sold","\u2014","","","\u2014","","","(41)"],["Ending balance","8,805","","","5,872","","","4,830"],["Utilization rate at year end (1)","100.0","%","","100.0","%","","100.0","%"],["Active railcars at year end (2)","8,805","","","5,872","","","4,830"],["Average active railcars (3)","7,082","","","5,395","","","4,326"]]
[[/GREPCENT_TABLE]]

_______

(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 2023, fluctuations in the value of the euro, relative to the U.S. dollar, positively impacted lease revenue by approximately $7.4 million and segment profit, excluding other income (expense), by approximately $2.7 million compared to 2022.

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Segment Profit

In 2023, segment profit of $113.4 million increased 32.0% compared to $85.9 million in 2022. Segment profit in 2023 included a $0.3 million disposition gain recorded as a result of the decision to exit the Rail Russia business. 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 these items, results for Rail International were $12.6 million higher than 2022. The increase was primarily due to higher lease revenue from more railcars on lease and higher lease rates, partially offset by higher maintenance and interest expenses.

Revenues

In 2023, lease revenue increased $30.4 million, or 11.4%, due to more railcars on lease and higher lease rates at GRE and Rail India and the impact of foreign exchange rates. Other revenue increased $3.8 million, driven by higher repair revenue.

Expenses

In 2023, maintenance expense increased $12.7 million, primarily due to more repairs performed, higher costs for repairs, inflationary impacts, and the impact of foreign exchange rates. Depreciation expense decreased $0.9 million, due to certain operating assets at GRE becoming fully depreciated in the prior year, partially offset by the impact of new railcars added to the fleet.

Other Income (Expense)

In 2023, net gain (loss) on asset dispositions increased $18.2 million, driven by the absence of the impairment recorded in the prior year as a result of the decision to exit the Rail Russia business and more railcars sold at GRE in 2023. Net interest expense increased $10.6 million, due to a higher average interest rate and a higher average debt balance. Other (expense) income was unfavorable $0.4 million, driven by the negative impact of changes in foreign exchange rates, primarily euro-zloty fluctuations, partially offset by lower litigation costs.

Investment Volume

During 2023, investment volume was $382.4 million, compared to $243.9 million in 2022. In 2023, GRE acquired 1,695 railcars compared to 1,211 railcars in 2022, and Rail India acquired 2,933 railcars in 2023 compared to 1,042 railcars in 2022.

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 engines. Segment profit included earnings from the RRPF affiliates of $98.7 million for 2023, $45.4 million for 2022, and $56.5 million for 2021. In 2022, RRPF recorded an impairment charge associated with aircraft spare engines in Russia that RRPF does not expect to recover. GATX's 50% share of this net impairment was $15.3 million ($11.5 million after tax). GATX did not make any additional investment in the RRPF affiliates in 2023 or 2022. Dividend distributions from the RRPF affiliates totaled $25.0 million in 2023 and $46.2 million in 2022.

The operating environment for the RRPF affiliates was strong, as global demand for air passenger travel continued to improve in 2023.

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. In 2023, GEL acquired ten engines for approximately $267 million. As of December 31, 2023, GEL owned 29 aircraft spare engines, with 14 on long-term leases with airline

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customers and 15 that are employed in an engine capacity agreement with Rolls-Royce for use in its engine maintenance programs. All engines at GEL are managed by the RRPF affiliates.

Portfolio Management previously owned the Specialized Gas Vessels. In 2022, we made the decision to sell the Specialized Gas Vessels and recorded impairment losses totaling $34.3 million and sold two vessels. In 2023, we sold the remaining three vessels and recorded net losses of $4.0 million.

In 2023, Portfolio Management sold its natural gas holdings and recorded a gain of $5.7 million.

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Revenues"],["Lease revenue","$","32.6","","","$","33.0","","","$","28.1"],["Non-dedicated engine revenue","37.6","","","1.5","","","\u2014"],["Marine operating revenue","6.9","","","18.9","","","19.1"],["Other revenue","0.1","","","0.2","","","0.5"],["Total Revenues","77.2","","","53.6","","","47.7"],["Expenses"],["Marine operating expense","6.5","","","14.1","","","17.5"],["Depreciation expense","28.3","","","17.8","","","17.6"],["Other operating expense","7.3","","","2.3","","","1.7"],["Total Expenses","42.1","","","34.2","","","36.8"],["Other Income (Expense)"],["Net gain (loss) on asset dispositions","2.2","","","(31.1)","","","8.0"],["Interest expense, net","(29.8)","","","(19.0)","","","(16.6)"],["Other income","0.2","","","\u2014","","","2.0"],["Share of affiliates' pre-tax earnings","98.7","","","45.4","","","56.5"],["Segment Profit","$","106.4","","","$","14.7","","","$","60.8"],["Investment Volume","$","267.3","","","$","149.7","","","$","353.0"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","2023","","2022"],["Investment in RRPF Affiliates","$","626.8","","","$","574.3"],["GEL owned aircraft spare engines","714.0","","","475.0"],["Specialized Gas Vessels","\u2014","","","25.1"],["Other owned assets","14.3","","","32.2"],["Total assets","$","1,355.1","","","$","1,106.6"]]
[[/GREPCENT_TABLE]]

39

RRPF Affiliates Portfolio Data

As of December 31, 2023, the RRPF affiliates' portfolio consisted of 399 aircraft spare engines with a net book value of $4,067.2 million, compared to 398 aircraft spare engines with a net book value of $4,176.5 million at the end of 2022.

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Beginning balance","398","","","407","","","445"],["Engine acquisitions","14","","","9","","","5"],["Engine dispositions","(13)","","","(18)","","","(43)"],["Ending balance","399","","","398","","","407"],["Utilization rate at year end (1)","95.5","%","","94.2","%","","94.3","%"],["Average leased engines (2)","376","","","372","","","400"]]
[[/GREPCENT_TABLE]]

________

(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 2023, segment profit was $106.4 million compared to $14.7 million in 2022. Segment profit in 2023 included $4.0 million of losses associated with the Specialized Gas Vessels. 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 $46.1 million higher than 2022, primarily driven by higher earnings at the RRPF affiliates and higher results from GEL operations.

40

Revenues

In 2023, lease revenue was comparable to the prior year. Non-dedicated engine revenue increased $36.1 million due to more aircraft spare engines utilized in the engine capacity agreement with Rolls-Royce as a result of acquisitions. Marine operating revenue decreased $12.0 million, driven by the sale of the Specialized Gas Vessels in 2022 and 2023.

Expenses

In 2023, marine operating expense decreased $7.6 million, due to sale of the Specialized Gas Vessels in 2022 and 2023. Depreciation expense increased $10.5 million, due to new aircraft spare engines acquired in 2022 and 2023, offset by the absence of depreciation expense on the Specialized Gas Vessels classified as held for sale in 2022.

Other Income (Expense)

In 2023, net gain (loss) on asset dispositions was favorable by $33.3 million, driven by lower impairment losses recorded in 2023 for the Specialized Gas Vessels as well as the sale of the natural gas holdings in 2023.

In 2023, income from our share of affiliates' earnings increased $53.3 million, driven by the absence of the $15.3 million net impairment charge recorded in 2022 at RRPF, higher income from operations, and higher remarketing income.

Investment Volume

Investment volume was $267.3 million in 2023, compared to $149.7 million in 2022. During 2023, GEL acquired ten aircraft spare engines compared to five aircraft spare engines in 2022.

OTHER

Other comprises our Trifleet 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.

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. As a result, GATX recorded $5.9 million of 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):

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Trifleet revenue","$","41.5","","","$","36.1","","","$","33.7"],["Trifleet segment profit","$","13.4","","","$","13.8","","","$","10.2"],["Unallocated interest income (expense)","12.7","","","1.1","","","(0.5)"],["Other income (expense), including eliminations","3.1","","","(18.8)","","","(11.0)"],["Segment Profit (Loss)","$","29.2","","","$","(3.9)","","","$","(1.3)"],["Selling, general and administrative expense","$","212.7","","","$","195.0","","","$","198.3"],["Investment Volume","$","38.4","","","$","46.3","","","$","29.8"]]
[[/GREPCENT_TABLE]]

Trifleet Summary

The tank container leasing market experienced softer demand across certain regions in 2023, with some customers postponing tank container fleet decisions. Utilization was 87.3% at December 31, 2023.

41

Trifleet Tank Container Data

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Ending balance - owned and managed","23,931","","","21,999","","","19,996"],["Utilization rate at year-end - owned and managed (1)","87.3","%","","93.1","%","","89.2","%"]]
[[/GREPCENT_TABLE]]

_______

(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 increased $17.7 million in 2023, driven by higher employee-related expenses, including the impacts of share-based compensation expenses, higher legal costs, higher information technology expenses, and the impact of foreign exchange rates.

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.

Other income (expense), including eliminations, was favorable by $21.9 million in 2023 compared to 2022. The variance was primarily related to lower non-service pension-related expenses, including lower pension settlement charges and lower non-service pension expense, as well as the absence of environmental remediation costs recorded in 2022.

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 net operating assets and facilities as of December 31 (in millions):

[[GREPCENT_TABLE]]
[["","2023","","2022"],["Beginning balance","$","8,250.3","","","$","7,784.8"],["Investments","1,622.2","","","1,215.5"],["Purchase of assets previously leased","\u2014","","","1.5"],["Depreciation expense","(385.6)","","","(365.0)"],["Asset dispositions","(149.9)","","","(130.9)"],["Transfers to assets held for sale","(1.7)","","","(116.0)"],["Foreign exchange rate effects","87.1","","","(111.7)"],["Other","(11.2)","","","(27.9)"],["Ending balance","$","9,411.2","","","$","8,250.3"]]
[[/GREPCENT_TABLE]]

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, 2023, we had an unrestricted cash balance of $450.7 million. We also have a $250 million 3-year unsecured revolving credit facility in the United States that matures in 2026 and a $600 million, 5-year unsecured revolving credit facility in the United States that matures in 2028, both of which were fully available as of December 31, 2023.

42

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Net cash provided by operating activities","$","520.4","","","$","533.5","","","$","507.2"],["Net cash used in investing activities","(1,219.3)","","","(1,073.5)","","","(917.7)"],["Net cash provided by financing activities","844.1","","","504.4","","","463.1"],["Effect of exchange rate changes on cash and cash equivalents","1.6","","","(4.9)","","","(1.8)"],["Net cash provided by discontinued operations","\u2014","","","\u2014","","","1.1"],["Net increase (decrease) in cash, cash equivalents, and restricted cash during the year","$","146.8","","","$","(40.5)","","","$","51.9"]]
[[/GREPCENT_TABLE]]

Net Cash Provided by Operating Activities

Net cash provided by operating activities in 2023 of $520.4 million decreased $13.1 million compared to 2022. Comparability among reporting periods is impacted by the timing of changes in working capital items. Specifically, higher cash payments for maintenance, interest, and other operating expenses, as well as lower affiliate dividends received, were partially offset by higher cash receipts from revenue, lower payments for operating leases, and lower payments for income taxes.

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):

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Portfolio investments and capital additions (1)","$","(1,665.0)","","","$","(1,255.8)","","","$","(1,131.9)"],["Portfolio proceeds (2)","272.8","","","269.6","","","187.1"],["Short-term investments (3)","150.0","","","(148.5)","","","\u2014"],["Other investing activity","22.9","","","61.2","","","27.1"],["Net cash used in investing activities","$","(1,219.3)","","","$","(1,073.5)","","","$","(917.7)"]]
[[/GREPCENT_TABLE]]

_______

(1) Portfolio investments and capital additions primarily consist of purchases of operating assets and capitalized asset improvements. See the discussions of segment operating results sections in this Item for more detail.

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

(3) Short-term U.S. Treasury Obligations with an original maturity date of over 90 days.

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Rail North America","$","976.9","","","$","815.9","","","$","574.4"],["Rail International","382.4","","","243.9","","","173.3"],["Portfolio Management","267.3","","","149.7","","","353.0"],["Other","38.4","","","46.3","","","31.2"],["Total","$","1,665.0","","","$","1,255.8","","","$","1,131.9"]]
[[/GREPCENT_TABLE]]

The increase in portfolio investments and capital additions of $409.2 million in the year ended December 31, 2023 is primarily due to more railcars acquired at Rail North America and Rail International and more aircraft spare engines acquired at GEL, partially offset by fewer tank containers acquired at Trifleet. The timing of investments depends on purchase commitments, transaction opportunities, and market conditions.

43

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Proceeds from sales of operating assets","$","272.8","","","$","269.6","","","$","181.1"],["Other","\u2014","","","\u2014","","","6.0"],["Total","$","272.8","","","$","269.6","","","$","187.1"]]
[[/GREPCENT_TABLE]]

Portfolio proceeds increased $3.2 million in 2023 compared to 2022, primarily due to proceeds from the sale of Rail Russia at Rail International, partially offset by lower proceeds received from the sales of the Specialized Gas Vessels at Portfolio Management in 2023 compared to 2022.

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Proceeds from sales of other assets (1)","$","20.2","","","$","31.1","","","$","54.7"],["Other","2.7","","","30.1","","","(27.6)"],["Total","$","22.9","","","$","61.2","","","$","27.1"]]
[[/GREPCENT_TABLE]]
________

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

Net Cash Provided by Financing Activities

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Net proceeds from issuances of debt (original maturities longer than 90 days)","$","1,420.0","","","$","848.3","","","$","1,491.9"],["Repayments of debt (original maturities longer than 90 days)","(500.0)","","","(250.0)","","","(884.0)"],["Net decrease in debt with original maturities of 90 days or less","(7.1)","","","\u2014","","","(4.1)"],["Purchases of assets previously leased (1)","\u2014","","","(1.5)","","","(77.2)"],["Stock repurchases (2)","(2.6)","","","(47.2)","","","(13.1)"],["Dividends","(80.6)","","","(76.6)","","","(74.3)"],["Other","14.4","","","31.4","","","23.9"],["Total","$","844.1","","","$","504.4","","","$","463.1"]]
[[/GREPCENT_TABLE]]

________

(1) We did not purchase any railcars that were previously leased in 2023, compared to 21 railcars in 2022.

(2) During 2023, we repurchased 24,520 shares of common stock for $2.6 million, compared to 472,609 shares of common stock for $47.2 million in 2022.

44

The following table shows the activity on our long-term debt principal in 2023 (in millions):

[[GREPCENT_TABLE]]
[["","Balance at 12/31/22","","Issuances","","Payments","","Impact of Foreign Exchange Rates","","","","Balance at 12/31/23"],["U.S. notes","$","5,450.0","","","$","1,100.0","","","$","(250.0)","","","$","\u2014","","","","","$","6,300.0"],["U.S. delayed draw term loans","250.0","","","150.0","","","(250.0)","","","\u2014","","","","","150.0"],["EUR notes (1)","631.7","","","\u2014","","","\u2014","","","19.5","","","","","651.2"],["Schuldschein loans (1)","160.5","","","81.1","","","\u2014","","","6.8","","","","","248.4"],["India delayed draw term loans (2)","\u2014","","","101.7","","","\u2014","","","(0.7)","","","","","101.0"],["Total debt principal","$","6,492.2","","","$","1,432.8","","","$","(500.0)","","","$","25.6","","","","","$","7,450.6"]]
[[/GREPCENT_TABLE]]

__________

(1) Denominated in euros, but presented in U.S. dollars in this table.

(2) Denominated in Indian rupees, but presented in U.S. dollars in this table.

See "Note 8. Debt" in Part II, Item 8 of this Form 10-K for information regarding the terms of our outstanding debt.

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.

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, 2023 (in millions):

[[GREPCENT_TABLE]]
[["","Material Cash Obligations by Period"],["","Total","","2024","","2025","","2026","","2027","","2028","","Thereafter"],["Recourse debt","$","7,450.6","","","$","526.3","","","$","520.8","","","$","611.9","","","$","458.4","","","$","735.0","","","$","4,598.2"],["Interest on recourse debt (1)","2,720.2","","","301.9","","","286.7","","","273.2","","","250.5","","","226.4","","","1,381.5"],["Commercial paper and credit facilities","11.0","","","11.0","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Operating lease obligations","258.3","","","39.4","","","36.8","","","45.2","","","38.7","","","25.4","","","72.8"],["Purchase commitments (2)","2,677.9","","","958.0","","","417.5","","","527.5","","","396.2","","","378.7","","","\u2014"],["Total","$","13,118.0","","","$","1,836.6","","","$","1,261.8","","","$","1,457.8","","","$","1,143.8","","","$","1,365.5","","","$","6,052.5"]]
[[/GREPCENT_TABLE]]

__________

(1) For floating rate debt, future interest payments are based on the applicable interest rate as of December 31, 2023.

(2) Primarily railcar purchase commitments. The amounts shown for all years are based on management's estimates of the timing, anticipated railcar 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 Item.

Liquidity Outlook

In addition to our contractual obligations, expenditures in 2024 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 2024 using available cash at December 31, 2023 in combination with cash from operations, portfolio proceeds, and long-term debt issuances. We also have access to our revolving credit facilities if needed. Based on the available sources of liquidity, we also expect to meet our funding needs beyond 2024.

45

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, 2023 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):

[[GREPCENT_TABLE]]
[["","2023","","2022"],["","Secured","","Unsecured","","Total","","Total"],["Commercial paper and borrowings under bank credit facilities","$","\u2014","","","$","11.0","","","$","11.0","","","$","17.3"],["Recourse debt","\u2014","","","7,388.1","","","7,388.1","","","6,431.5"],["Operating lease obligations","226.8","","","\u2014","","","226.8","","","257.9"],["Total","$","226.8","","","$","7,399.1","","","$","7,625.9","","","$","6,706.7"]]
[[/GREPCENT_TABLE]]

As of December 31, 2023, our outstanding debt had a weighted-average remaining term of 8.4 years and a weighted-average interest rate of 4.08%, compared to 8.6 years and 3.72% at December 31, 2022. See "Note 8. Debt" in Part II, Item 8 of this Form 10-K.

Short-Term Borrowings and Credit Lines and Facilities

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.

We have a $600 million, 5-year unsecured revolving credit facility in the United States. In 2023, we entered into an amendment to this facility to extend the maturity by one year from May 2027 to May 2028. As of December 31, 2023, 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 2023, we also entered into an amendment to this facility, which extended the maturity by one year from May 2025 to May 2026. As of December 31, 2023, 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, 2023, €25.0 million was available under these credit facilities. At December 31, 2023, we had $11.0 million of outstanding short-term borrowings under bank credit facilities at our European subsidiaries. The weighted-average interest rate of these outstanding borrowings during 2023 was 3.9%.

Delayed Draw Term Loans

As of December 31, 2023, we had $24.2 million available under an outstanding delayed draw term loan in India.

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.

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, 2023, our long-term unsecured debt was rated BBB by Standard & Poor's, Baa2 by Moody’s Investor Service, and BBB+ by Fitch Ratings, Inc., and our short-term unsecured debt was rated A-2 by Standard & Poor's, P-2 by Moody’s Investor Service, and F2 by Fitch Ratings, Inc. Our rating outlook from all agencies was stable.

46

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):

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Debt and lease obligations, net of unrestricted cash and short-term investments:"],["Unrestricted cash and short-term investments","$","(450.7)","","","$","(452.2)","","","$","(344.3)"],["Commercial paper and bank credit facilities","11.0","","","17.3","","","18.1"],["Recourse debt","7,388.1","","","6,431.5","","","5,887.5"],["Operating lease obligations","226.8","","","257.9","","","286.2"],["Finance lease obligations","\u2014","","","\u2014","","","1.5"],["Total debt and lease obligations, net of unrestricted cash and short-term investments","$","7,175.2","","","$","6,254.5","","","$","5,849.0"],["Total recourse debt (1)","$","7,175.2","","","$","6,254.5","","","$","5,849.0"],["Shareholders' Equity","$","2,273.0","","","$","2,029.6","","","$","2,019.2"],["Recourse Leverage (2)","3.2","","","3.1","","","2.9"]]
[[/GREPCENT_TABLE]]

________

(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.

Our commercial commitments at December 31, 2023 are presented in "Note 15. Commercial Commitments" within Item 8 of this Form 10-K.

Defined Benefit Plan Contributions

In 2023, we contributed $7.1 million to our defined benefit pension plans and other post-retirement benefit plans. In 2024, we expect to contribute approximately $4.4 million. As of December 31, 2023, our funded pension plans in the aggregate were 102.4% 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.

47

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 repurchases will be dependent on market conditions and other factors. During 2023, we repurchased 24,520 shares of common stock for $2.6 million, excluding commissions, compared to 472,609 shares repurchased for $47.2 million, excluding commissions, in 2022. As of December 31, 2023, $87.1 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. We periodically review the appropriateness of our estimates of useful lives 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), operating costs, freight rates and volume, 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.

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.

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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 U.S. Securities and Exchange Commission ("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.

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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):

[[GREPCENT_TABLE]]
[["Impact of Tax Adjustments and Other Items on Net Income:"],["","2023","","2022","","2021"],["Net income (GAAP)","$","259.2","","","$","155.9","","","$","143.1"],["Adjustments attributable to consolidated pre-tax income:"],["Loss on Specialized Gas Vessels at Portfolio Management (1)","$","4.0","","","$","34.3","","","$","\u2014"],["Net (gain) loss on Rail Russia at Rail International (2)","(0.3)","","","14.6","","","\u2014"],["Environmental remediation costs (3)","\u2014","","","5.9","","","\u2014"],["Net insurance proceeds (4)","\u2014","","","\u2014","","","(5.3)"],["Debt extinguishment costs (5)","\u2014","","","\u2014","","","4.5"],["Total adjustments attributable to consolidated pre-tax income","$","3.7","","","$","54.8","","","$","(0.8)"],["Income taxes thereon, based on applicable effective tax rate","$","\u2014","","","$","(1.5)","","","$","0.2"],["Other income tax adjustments attributable to consolidated income:"],["Income tax rate changes (6)","$","(3.0)","","","$","(3.0)","","","$","\u2014"],["Net operating loss valuation allowance adjustment (7)","(2.3)","","","\u2014","","","\u2014"],["Total other income tax adjustments attributable to consolidated income","$","(5.3)","","","$","(3.0)","","","$","\u2014"],["Adjustments attributable to affiliates' earnings, net of taxes:"],["Aircraft spare engine impairment at RRPF (8)","$","\u2014","","","$","11.5","","","$","\u2014"],["Income tax rate change (9)","\u2014","","","\u2014","","","39.7"],["Total adjustments attributable to affiliates' earnings, net of taxes","$","\u2014","","","$","11.5","","","$","39.7"],["Net income, excluding tax adjustments and other items (non-GAAP)","$","257.6","","","$","217.7","","","$","182.2"]]
[[/GREPCENT_TABLE]]

51

[[GREPCENT_TABLE]]
[["Impact of Tax Adjustments and Other Items on Diluted Earnings per Share:"],["","2023","","2022","","2021"],["Diluted earnings per share (GAAP)","$","7.12","","","$","4.35","","","$","3.98"],["Adjustments attributable to consolidated income, net of taxes:"],["Loss on Specialized Gas Vessels at Portfolio Management (1)","$","0.11","","","$","0.96","","","$","\u2014"],["Net (gain) loss on Rail Russia at Rail International (2)","(0.01)","","","0.41","","","\u2014"],["Environmental remediation costs (3)","\u2014","","","0.12","","","\u2014"],["Net insurance proceeds (4)","\u2014","","","\u2014","","","(0.11)"],["Debt extinguishment costs (5)","\u2014","","","\u2014","","","0.09"],["Other income tax adjustments attributable to consolidated income:"],["Income tax rate changes (6)","(0.08)","","","(0.08)","","","\u2014"],["Net operating loss valuation allowance adjustment (7)","(0.06)","","","\u2014","","","\u2014"],["Adjustments attributable to affiliates' earnings, net of taxes:"],["Aircraft spare engine impairment at RRPF (8)","\u2014","","","0.32","","","\u2014"],["Income tax rate change (9)","\u2014","","","\u2014","","","1.10"],["Diluted earnings per share, excluding tax adjustments and other items (non-GAAP)*","$","7.07","","","$","6.07","","","$","5.06"]]
[[/GREPCENT_TABLE]]

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

_______

(1)    In 2022, we made the decision to sell the Specialized Gas Vessels. We have recorded gains and losses associated with the subsequent impairments and sales of these assets.

(2)    In 2022, we made the decision to exit Rail Russia and recorded losses in 2022 associated with the impairment of the net assets. In the first quarter of 2023, we sold Rail Russia and recorded a gain on the final sale of this business.

(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 adjustments attributable to state tax rate reductions in 2023 and an enacted corporate income tax rate reduction in Austria in 2022.

(7)    Valuation allowance adjustment associated with the realizability of state net operating losses in future tax years.

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

(9)    Deferred income tax adjustment due to an enacted corporate income tax rate increase in the United Kingdom in 2021.

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Return on Equity (GAAP)","12.0","%","","7.7","%","","7.2","%"],["Return on Equity, excluding tax adjustments and other items (non-GAAP)","12.0","%","","10.8","%","","9.2","%"]]
[[/GREPCENT_TABLE]]

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