GATX CORP (GATX) FY 2024 MD&A

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 Engine Leasing (previously named Portfolio Management). Financial results for our tank container leasing business ("Trifleet") are reported in the Other segment.

In 2024, we changed the name of our Portfolio Management business segment to Engine Leasing to reflect the prospective operations of this business segment. Historically, this business segment included marine operations from our liquefied gas-carrying vessels (the "Specialized Gas Vessels"). As of December 31, 2023, we had sold all of our marine assets and no longer have any marine operations. The segment is now almost entirely composed of our engine leasing operations, which include our ownership interest in the Rolls-Royce & Partners Finance ("RRPF") affiliates, a group of joint ventures with Rolls-Royce plc (or affiliates thereof, collectively "Rolls-Royce") that lease aircraft spare engines, and GATX Engine Leasing ("GEL"), our business that directly owns aircraft spare engines that are leased to airline customers or employed in an engine capacity agreement.

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 Engine Leasing segment. We sold two vessels in 2022.

The following discussion and analysis of our financial condition and results of operations 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 2023 to 2022 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, 2023, as filed with the SEC on February 16, 2024.

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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):

_________

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

2024 Summary

Net income was $284.2 million, or $7.78 per diluted share, for 2024 compared to $259.2 million, or $7.12 per diluted share, for 2023, and $155.9 million, or $4.35 per diluted share, for 2022. Results for 2024 included a net negative impact of $3.9 million ($0.11 per diluted share) from tax adjustments and other items, compared to a net positive impact of $1.6 million ($0.05 per diluted share) from tax adjustments and other items in 2023 and a net negative impact of $61.8 million ($1.72 per diluted share) from tax adjustments and other items in 2022 (see "Non-GAAP Financial Measures" at the end of this item for further details).

•At Rail North America, segment profit in 2024 was higher than prior year. The increase was primarily attributable to higher lease revenue, higher net gain on asset dispositions, and higher repair revenue, partially offset by higher interest and maintenance expense.

•At Rail International, segment profit in 2024 was higher than prior year, due to more railcars on lease and higher lease rates, partially offset by higher maintenance and interest expense.

•At Engine Leasing, segment profit in 2024 increased compared to prior year, a result of higher earnings at the RRPF affiliates, higher earnings from GEL operations, and the absence of impairments recorded in 2023 for the Specialized Gas Vessels, partially offset by the absence of the gain on the sale of natural gas holdings recorded in 2023.

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•Within Other, Trifleet's segment profit decreased, largely due to lower lease revenue, resulting from lower utilization, as well as higher interest expense and higher bad debt expense resulting from a settlement and restructuring agreement with a customer in the current year.

Total investment volume was $1,674.4 million in 2024, compared to $1,665.0 million in 2023, and $1,255.8 million in 2022.

2025 Outlook

Conditions in the North American railcar leasing market remained strong in 2024, and we expect favorable conditions to continue in 2025. At Rail International, we expect favorable demand for our railcars in both our European and Indian businesses. The operating environment for our engine leasing businesses at RRPF and GEL is strong, as 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 2025 to increase slightly from 2024. Lease rates for railcars scheduled to renew in 2025 will likely be higher than expiring rates for most car types 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 2025. We anticipate remarketing income to be slightly lower than 2024, but we continue to see a strong secondary market. We expect the impact of slightly higher regulatory compliance work, partially offset by a benefit from efficiencies in our owned maintenance network to result in modestly higher maintenance expense in 2025 compared to the prior year. Finally, we anticipate interest expense and depreciation to be higher in 2025 compared to 2024.

•Rail International's segment profit in 2025 is expected to increase from 2024, driven by continued growth of the fleet sizes in Europe and India. Demand for railcars in Europe should continue to be solid across most car types, and we plan to continue to invest in the fleet. Lease revenue is expected to be higher in 2025, 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 Engine Leasing's segment profit in 2025 to be higher than 2024. We expect an increase in segment profit from GEL as a result of additional aircraft spare engines acquired during 2024. 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 reported to GATX's President and Chief Executive Officer for purposes of assessing performance and allocating capital and resources to 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 was favorable as demand for existing railcars remained steady. Rail North America continued to extend lease renewal terms at attractive rates while maintaining high fleet utilization and a strong renewal success rate. Utilization of our non-boxcar fleet was 99.1% 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 and statistics 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, 2024, leases for approximately 21,500 tank and freight cars and approximately 1,200 boxcars are scheduled to expire in 2025. These amounts exclude railcars on leases expiring in 2025 that have already been renewed or assigned to a new lessee.

In 2022, we entered into a 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 is scheduled to 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, are expected to 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, 2024, 5,392 railcars have been ordered pursuant to the terms of the agreement, of which 3,458 have been delivered.

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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 LPI calculation includes all renewal activity based on a 12-month trailing average, and the renewals are weighted by the count of all renewals over the 12-month period. 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.

During 2024, the renewal rate change of the LPI was positive 26.7%, compared to positive 33.5% in 2023. Lease terms on renewals for railcars in the LPI averaged 60 months in 2024 compared to 65 months in 2023.

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The following table shows fleet activity and 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 of 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:

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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.

Comparison of Reported Results

Segment Profit

In 2024, segment profit of $356.0 million increased 15.8% compared to $307.3 million in 2023. The increase was primarily due to higher lease revenue, higher net gain on asset dispositions, and higher repair revenue, partially offset by higher interest expense and higher maintenance expense. The amount and timing of disposition gains is dependent on a number of factors and may vary materially from year to year.

Revenues

In 2024, lease revenue increased $94.7 million, or 10.7%, driven by higher lease rates and more railcars on lease. Other revenue increased $21.6 million, primarily due to higher repair revenue.

Expenses

In 2024, maintenance expense increased $30.3 million, driven by higher costs of repairs, more regulatory compliance events, and more repairs performed by the railroads. Depreciation expense increased $5.2 million, due to the timing of new railcar investments and dispositions, partially offset by a change in the useful lives of certain railcars. Other operating expense increased $0.5 million, due to higher insurance and storage costs, partially offset by lower switching and freight costs.

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Other Income (Expense)

In 2024, net gain on asset dispositions increased $12.3 million, driven by higher net gains on railcars sold and higher 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. Net interest expense increased $49.2 million, due to a higher average interest rate and a higher average debt balance. Other expense was favorable $2.6 million, driven by lower legal costs, partially offset by lower customer settlement proceeds received in 2024.

Investment Volume

During 2024, investment volume was $1,162.4 million compared to $976.9 million in 2023. We acquired 3,812 newly built railcars, purchased 2,279 railcars in the secondary market, and purchased 156 locomotives in the secondary market in 2024, compared to 3,835 newly built railcars, 1,934 railcars in the secondary market, and no locomotives in 2023.

Our investment volume is predominantly composed of acquired railcars, but also includes the acquisition of locomotives, 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 solid operating results in 2024 and continued to grow its fleet, exceeding 30,000 railcars during the current year. GRE experienced renewal lease rate increases for a majority of railcar types in 2024. Utilization was 96.1% at the end of the year.

The fleet size of our rail business in India ("Rail India") surpassed 10,000 railcars in 2024, and 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 remained strong, driven by continued growth in the economy and infrastructure development. Utilization was 100.0% at the end of the year.

In 2023, we sold Rail Russia. 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):

GRE Fleet Data

The following table shows fleet activity and statistics 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.

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As of December 31, 2024, leases for approximately 10,300 railcars are scheduled to expire in 2025. This amount excludes railcars on leases expiring in 2025 that have already been renewed or assigned to a new lessee.

Rail India Fleet Data

The following table shows fleet activity and statistics 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 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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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 2024, fluctuations in the value of the euro, relative to the U.S. dollar, positively impacted lease revenue by approximately $0.6 million and negatively impacted segment profit, excluding other income (expense), by approximately $1.7 million compared to 2023.

Segment Profit

In 2024, segment profit of $119.8 million increased 5.6% compared to $113.4 million in 2023. Segment profit in 2023 included a $0.3 million disposition gain recorded as a result of the decision to exit the Rail Russia business. Excluding this item, results for Rail International were $6.7 million higher than 2023. The increase was primarily due to more railcars on lease and higher lease rates at both GRE and Rail India, partially offset by higher interest expense and higher maintenance expense at GRE.

Revenues

In 2024, lease revenue increased $37.0 million, or 12.5%, due to more railcars on lease and higher lease rates at GRE and Rail India.

Expenses

In 2024, maintenance expense increased $6.6 million, primarily due to more repairs performed, and the impact of foreign exchange rates, partially offset by lower wheelset costs. Depreciation expense increased $10.5 million, due to the impact of new railcars added to the fleet and the impact of foreign exchange rates.

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Other Income (Expense)

In 2024, net gain (loss) on asset dispositions decreased $2.5 million, driven by fewer railcars sold, partially offset by higher net scrapping gains due to more railcars scrapped. Net interest expense increased $15.2 million, due to a higher average interest rate and a higher average debt balance. Other income (expense) was favorable by $7.4 million, driven by the positive impact of changes in foreign exchange rates, primarily euro-zloty fluctuations.

Investment Volume

During 2024, investment volume was $232.9 million, compared to $382.4 million in 2023. In 2024, GRE acquired 1,316 newly built railcars compared to 1,695 newly built railcars in 2023, and Rail India acquired 1,783 newly built railcars in 2024 compared to 2,933 newly built railcars in 2023.

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.

ENGINE LEASING

Segment Summary

As disclosed previously, we had sold all of our marine assets as of December 31, 2023 and no longer have any marine operations. As a result, we have changed the name of this business segment from Portfolio Management to Engine Leasing to reflect the prospective operations of the segment.

Engine Leasing includes the RRPF affiliates, a group of 50% owned domestic and foreign joint ventures with Rolls-Royce, a leading manufacturer of commercial aircraft jet engines. Segment profit included earnings from the RRPF affiliates of $108.3 million for 2024, $98.7 million for 2023, and $45.4 million for 2022. 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 2024, 2023, or 2022. Dividend distributions from the RRPF affiliates totaled $50.0 million in 2024, $25.0 million in 2023, and $46.2 million in 2022. The operating environment for the RRPF affiliates was strong, as international air passenger travel was robust in 2024. High demand, combined with production and maintenance constraints in the aviation industry, resulted in a very strong market for aircraft spare engines.

Engine Leasing also includes GEL, our wholly owned entity that invests directly in aircraft spare engines. In 2024, GEL acquired 10 engines for approximately $261 million. As of December 31, 2024, GEL owned 39 aircraft spare engines, with 14 on long-term leases with airline customers and 25 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, for which we paid them a fee of $4.1 million in 2024, $2.7 million in 2023 and $1.0 million in 2022.

Engine Leasing 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 2024, we recorded final gains of $0.6 million associated with the Specialized Gas Vessels.

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

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

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

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RRPF Affiliates Portfolio Data

The following table shows portfolio activity and statistics 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.

GEL Portfolio Data

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

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Comparison of Reported Results

Segment Profit

In 2024, segment profit was $117.3 million compared to $106.4 million in 2023. Segment profit included $0.6 million of gains in 2024 and $4.0 million of losses in 2023 associated with the Specialized Gas Vessels. Excluding the impact of these items, results for Engine Leasing were $6.3 million higher than 2023, driven by higher earnings at the RRPF affiliates and GEL, partially offset by the absence of the gain on the sale of natural gas holdings recorded in the prior year.

Revenues

In 2024, lease revenue was comparable to the prior year. Non-dedicated engine revenue increased $27.0 million, primarily due to aircraft spare engines acquired in 2023 and 2024 and utilized in the engine capacity agreement with Rolls-Royce. Marine operating revenue decreased $6.9 million, driven by the final sales of the Specialized Gas Vessels in 2023.

Expenses

In 2024, marine operating expense decreased $6.5 million, due to sale of the Specialized Gas Vessels in 2023. Depreciation expense increased $9.5 million, due to aircraft spare engines acquired in 2023 and 2024.

Other Income (Expense)

In 2024, net gain (loss) on asset dispositions was unfavorable by $1.6 million, driven by the absence of gains recorded in 2023 for the sale of natural gas holdings, partially offset by net gains in 2024 and net losses in 2023 associated with the Specialized Gas Vessels. Net interest expense increased $12.1 million, due to a higher average debt balance and a higher average interest rate.

In 2024, income from our share of affiliates' earnings increased $9.6 million, driven by higher income from operations, partially offset by lower remarketing income. The amount and timing of remarketing income is dependent on a number of factors and may vary materially from year to year.

Investment Volume

Investment volume was $260.8 million in 2024, compared to $267.3 million in 2023. In both 2024 and 2023, GEL acquired ten aircraft spare engines.

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 2024, GATX recorded settlement expenses of $3.3 million for litigation claims arising out of legacy business operations and reserves of $10.7 million for its share of anticipated environmental remediation costs arising out of prior operations and legacy businesses. The majority of the recorded reserves relate to a facility that GATX sold in 1974, while the remainder of the amount relates to a landfill that GATX entities previously utilized, which was closed in 1986.

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 facility that GATX 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.

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

Trifleet Summary

The tank container leasing market remained challenging in 2024. Utilization was 84.7% at December 31, 2024.

Trifleet Tank Container Data

The following table shows fleet statistics for Trifleet's owned and managed 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 increased $23.6 million in 2024, driven by higher employee-related expenses, including higher share-based compensation expense, and higher information technology expenses.

Unallocated interest income (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 (expense) income, including eliminations, was unfavorable by $11.3 million in 2024 compared to 2023. The variance was driven by environmental reserves recorded and expenses related to litigation claims settlements, as noted above, partially offset by the absence of pension settlement charges recorded in 2023.

Consolidated Income Taxes

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

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CHANGE IN NET OPERATING ASSETS AND FACILITIES

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

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. 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, 2024, we had an unrestricted cash balance of $401.6 million. We also have a $600 million, 5-year unsecured revolving credit facility in the United States that matures in 2029 and a $350 million 3-year unsecured revolving credit facility in the United States that matures in 2027, both of which were fully available as of December 31, 2024. In addition, we have a €210 million, 3-year unsecured revolving credit facility in Europe that matures in 2027, which was fully available as of December 31, 2024.

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 in 2024 of $602.1 million increased $81.7 million compared to 2023. Comparability among reporting periods is impacted by the timing of changes in working capital items. Specifically, higher cash receipts from revenue, higher affiliate dividends received, and lower payments for operating leases were partially offset by higher cash payments for maintenance, interest, and other operating expenses, as well as higher payments for income taxes.

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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):

_______

(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.

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

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 $9.4 million in the year ended December 31, 2024 was primarily due to more railcars and locomotives acquired at Rail North America, partially offset by fewer railcars acquired at GRE and Rail India, and fewer tank containers acquired at Trifleet. The timing of investments depends on purchase commitments, transaction opportunities, and market conditions.

Portfolio proceeds decreased $42.2 million in 2024 compared to 2023, resulting from the absence of proceeds from the sale of three Specialized Gas Vessels at Engine Leasing and the sale of Rail Russia at Rail International in 2023.

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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):

________

(1) In 2024, we purchased 728 railcars that were previously leased, compared to zero railcars in 2023.

(2) During 2024, we repurchased 167,452 shares of common stock for $21.9 million, compared to 24,520 shares of common stock for $2.6 million in 2023.

The following table shows the activity on our long-term debt principal in 2024 (in millions):

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(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, distributions from affiliates, issuances of unsecured and secured debt, commercial paper issuances, and committed revolving credit facilities. 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, 2024 (in millions):

__________

(1) For floating rate debt, future interest payments are based on the applicable interest rate as of December 31, 2024.

(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 2025 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 2025 using available cash at December 31, 2024 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 2025.

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, 2024 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, 2024, our outstanding debt had a weighted-average remaining term of 8.6 years and a weighted-average interest rate of 4.59%, compared to 8.4 years and 4.08% at December 31, 2023. See "Note 8. Debt" in Part II, Item 8 of this Form 10-K.

Short-Term Borrowings and Credit Lines and Facilities

We 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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In 2024, we entered into a $600 million, 5-year unsecured revolving credit facility in the United States, expiring in May 2029. The facility contains two one-year extension options. This replaced our prior $600 million, 5-year unsecured revolving credit facility. As of December 31, 2024, the full $600 million was available under this facility. We also entered into a $350 million 3-year unsecured revolving credit facility in the United States, expiring in May 2027. This facility contains two one-year extension options. This replaced our prior $250 million 3-year unsecured revolving credit facility. As of December 31, 2024, the full $350 million was available under this facility.

In 2024, we entered into a new €210 million, 3-year unsecured revolving credit facility in Europe, expiring in December 2027. As of December 31, 2024, the full €210 million was available under this facility. In addition, our European subsidiaries have smaller unsecured credit facilities with an aggregate limit of €35.0 million. As of December 31, 2024, €25.0 million was available under these credit facilities, as €10.0 million ($10.4 million) was drawn. The weighted-average interest rate of these outstanding borrowings during 2024 was 4.24%.

Delayed Draw Term Loans

As of December 31, 2024, we had INR 2.0 billion ($23.4 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.

The following table shows our credit rating and rating outlook as of December 31, 2024:

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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, borrowings under 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, 2024 are presented in "Note 15. Commercial Commitments" within Item 8 of this Form 10-K.

Defined Benefit Plan Contributions

In 2024, we contributed $2.9 million to our defined benefit pension plans and other post-retirement benefit plans. In 2025, we expect to contribute approximately $4.2 million. As of December 31, 2024, our funded pension plans in the aggregate were 106.8% 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.

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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 2024, we repurchased 167,452 shares of common stock for $21.9 million, excluding commissions, compared to 24,520 shares repurchased for $2.6 million, excluding commissions, in 2023. As of December 31, 2024, $65.1 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, 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 measures to the most directly comparable GAAP measures.

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

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

_______

(1)    Expenses recorded for the settlements of litigation claims arising out of legacy business operations.

(2)    Reserves recorded in 2024 for our share of anticipated environmental remediation costs arising out of prior operations and legacy businesses and reserves recorded in 2022 as part of an executed agreement for anticipated remediation costs at a previously owned property, sold in 1974.

(3)    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. As of December 31, 2023, all vessels had been sold.

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

(5)    Deferred income tax adjustments attributable to state tax rate reductions in 2024 and 2023 and an enacted corporate income tax rate reduction in Austria in 2022.

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

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

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