Gatx Corp 10-Q for FY2024 Q1
Gatx Corp (GATX)
10-Q
2024-04-26
For: 2024-03-31
View Original
Added on
April 09, 2026
About this 10-Q
Gatx Corp filed this 10-Q on April 26, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $379.9M
- up 12.1% from $338.9M a year earlier
- Net income
- $74.3M
- down 4.0% from net income of $77.4M a year earlier
- Diluted EPS
- $2.03
- down 6.0% from $2.16 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
__________________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2024
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File Number: 1-2328
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices, including zip code)
(312 ) 621-6200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Smaller reporting company | ||||||||||||||||
☐ | Non-accelerated filer | Emerging growth company | |||||||||||||||
☐ | Accelerated filer | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 35.6 million common shares outstanding at March 31, 2024.
GATX CORPORATION
FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2024
INDEX
| Item No. | Page No. | |||||||
| Part I - FINANCIAL INFORMATION | ||||||||
| Item 1 | ||||||||
| Item 2 | ||||||||
| Item 3 | ||||||||
| Item 4 | ||||||||
| Part II - OTHER INFORMATION | ||||||||
| Item 1 | ||||||||
| Item 1A | ||||||||
| Item 2 | ||||||||
| Item 5 | ||||||||
| Item 6 | ||||||||
FORWARD-LOOKING STATEMENTS
Statements in this report not based on historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and, accordingly, involve known and unknown risks and uncertainties that are difficult to predict and could cause our actual results, performance, or achievements to differ materially from those discussed. Forward-looking statements include statements as to our future expectations, beliefs, plans, strategies, objectives, events, conditions, financial performance, prospects, or future events. In some cases, forward-looking statements can be identified by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," "outlook," "continue," "likely," "will," "would," and similar words and phrases. Forward-looking statements are necessarily based on estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of the date they are made, and are not guarantees of future performance. We do not undertake any obligation to publicly update or revise these forward-looking statements.
The following factors, in addition to those discussed under "Risk Factors" and elsewhere in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2023, could cause actual results to differ materially from our current expectations expressed in forward-looking statements:
•a significant decline in customer demand for our transportation assets or services, including as a result of: ◦prolonged inflation or deflation ◦high interest rates ◦weak macroeconomic conditions and world trade policies ◦weak market conditions in our customers' businesses ◦adverse changes in the price of, or demand for, commodities ◦changes in railroad operations, efficiency, pricing and service offerings, including those related to "precision scheduled railroading" or labor strikes or shortages ◦changes in, or disruptions to, supply chains ◦availability of pipelines, trucks, and other alternative modes of transportation ◦changes in conditions affecting the aviation industry, including global conflicts, geographic exposure and customer concentrations ◦customers' desire to buy, rather than lease, our transportation assets ◦other operational or commercial needs or decisions of our customers •inability to maintain our transportation assets on lease at satisfactory rates due to oversupply of assets in the market or other changes in supply and demand •competitive factors in our primary markets, including competitors with significantly lower costs of capital •higher costs associated with increased assignments of our transportation assets following non-renewal of leases, customer defaults, and compliance maintenance programs or other maintenance initiatives •events having an adverse impact on assets, customers, or regions where we have a concentrated investment exposure •financial and operational risks associated with long-term purchase commitments for transportation assets •reduced opportunities to generate asset remarketing income •inability to successfully consummate and manage ongoing acquisition and divestiture activities •reliance on Rolls-Royce in connection with our aircraft spare engine leasing businesses, and the risks that certain factors that adversely affect Rolls-Royce could have an adverse effect on our businesses •potential obsolescence of our assets | •risks related to our international operations and expansion into new geographic markets, including laws, regulations, tariffs, taxes, treaties or trade barriers affecting our activities in the countries where we do business •failure to successfully negotiate collective bargaining agreements with the unions representing a substantial portion of our employees •inability to attract, retain, and motivate qualified personnel, including key management personnel •inability to maintain and secure our information technology infrastructure from cybersecurity threats and related disruption of our business •exposure to damages, fines, criminal and civil penalties, and reputational harm arising from a negative outcome in litigation, including claims arising from an accident involving transportation assets •changes in, or failure to comply with, laws, rules, and regulations •environmental liabilities and remediation costs •operational, functional and regulatory risks associated with climate change, severe weather events and natural disasters, and other environmental, social and governance matters •U.S. and global political conditions and the impact of increased geopolitical tension and wars, including the ongoing war between Russia and Ukraine and resulting sanctions and countermeasures, on domestic and global economic conditions in general, including supply chain challenges and disruptions •prolonged inflation or deflation •fluctuations in foreign exchange rates •deterioration of conditions in the capital markets, reductions in our credit ratings, or increases in our financing costs •the emergence of new variants of COVID-19 or the occurrence of another widespread health crisis and the impact of measures taken in response •inability to obtain cost-effective insurance •changes in assumptions, increases in funding requirements or investment losses in our pension and post-retirement plans •inadequate allowances to cover credit losses in our portfolio •asset impairment charges we may be required to recognize •inability to maintain effective internal control over financial reporting and disclosure controls and procedures | |||||||
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GATX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except share data)
| March 31 | December 31 | ||||||||||
| 2024 | 2023 | ||||||||||
Assets | |||||||||||
Cash and Cash Equivalents | $ | $ | |||||||||
Restricted Cash | |||||||||||
Receivables | |||||||||||
Rent and other receivables | |||||||||||
Finance leases (as lessor) | |||||||||||
Less: allowance for losses | ( | ( | |||||||||
Operating Assets and Facilities | |||||||||||
Less: allowance for depreciation | ( | ( | |||||||||
Lease Assets (as lessee) | |||||||||||
Right-of-use assets, net of accumulated depreciation | |||||||||||
Investments in Affiliated Companies | |||||||||||
Goodwill | |||||||||||
Other Assets (includes $ | |||||||||||
Total Assets | $ | $ | |||||||||
Liabilities and Shareholders’ Equity | |||||||||||
Accounts Payable and Accrued Expenses | $ | $ | |||||||||
Debt | |||||||||||
Commercial paper and borrowings under bank credit facilities | |||||||||||
Recourse | |||||||||||
Lease Obligations (as lessee) | |||||||||||
Operating leases | |||||||||||
Deferred Income Taxes | |||||||||||
Other Liabilities | |||||||||||
Total Liabilities | |||||||||||
Shareholders’ Equity | |||||||||||
Common stock, $ Authorized shares — Issued shares — Outstanding shares — | |||||||||||
Additional paid in capital | |||||||||||
Retained earnings | |||||||||||
Accumulated other comprehensive loss | ( | ( | |||||||||
Treasury stock at cost ( | ( | ( | |||||||||
Total Shareholders’ Equity | |||||||||||
Total Liabilities and Shareholders’ Equity | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
2
GATX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In millions, except per share data)
| Three Months Ended March 31 | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
Revenues | |||||||||||||||||||||||
Lease revenue | $ | $ | |||||||||||||||||||||
Non-dedicated engine revenue | |||||||||||||||||||||||
Marine operating revenue | |||||||||||||||||||||||
Other revenue | |||||||||||||||||||||||
Total Revenues | |||||||||||||||||||||||
Expenses | |||||||||||||||||||||||
Maintenance expense | |||||||||||||||||||||||
Marine operating expense | |||||||||||||||||||||||
Depreciation expense | |||||||||||||||||||||||
Operating lease expense | |||||||||||||||||||||||
Other operating expense | |||||||||||||||||||||||
Selling, general and administrative expense | |||||||||||||||||||||||
Total Expenses | |||||||||||||||||||||||
Other Income (Expense) | |||||||||||||||||||||||
Net gain on asset dispositions | |||||||||||||||||||||||
Interest expense, net | ( | ( | |||||||||||||||||||||
Other income (expense) | ( | ||||||||||||||||||||||
Income before Income Taxes and Share of Affiliates’ Earnings | |||||||||||||||||||||||
Income taxes | ( | ( | |||||||||||||||||||||
Share of affiliates' earnings, net of taxes | |||||||||||||||||||||||
Net Income | $ | $ | |||||||||||||||||||||
Other Comprehensive (Loss) Income, Net of Taxes | |||||||||||||||||||||||
Foreign currency translation adjustments | $ | ( | $ | ||||||||||||||||||||
Unrealized gain on derivative instruments | |||||||||||||||||||||||
Post-retirement benefit plans | ( | ||||||||||||||||||||||
Other comprehensive (loss) income | ( | ||||||||||||||||||||||
Comprehensive Income | $ | $ | |||||||||||||||||||||
Share Data | |||||||||||||||||||||||
Basic earnings per share | $ | $ | |||||||||||||||||||||
Average number of common shares | |||||||||||||||||||||||
Diluted earnings per share | $ | $ | |||||||||||||||||||||
Average number of common shares and common share equivalents | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
GATX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
| Three Months Ended March 31 | |||||||||||
| 2024 | 2023 | ||||||||||
Operating Activities | |||||||||||
Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization expense | |||||||||||
Net gains on disposition of owned assets | ( | ( | |||||||||
| Asset impairments | |||||||||||
Deferred income taxes | |||||||||||
Share of affiliates’ earnings, net of dividends | ( | ( | |||||||||
Changes in working capital items | ( | ( | |||||||||
Net cash provided by operating activities | |||||||||||
Investing Activities | |||||||||||
Portfolio investments and capital additions | ( | ( | |||||||||
Portfolio proceeds | |||||||||||
Proceeds from sales of other assets | |||||||||||
Proceeds from short-term investments | |||||||||||
Other | |||||||||||
Net cash used in investing activities | ( | ( | |||||||||
Financing Activities | |||||||||||
Net proceeds from issuances of debt (original maturities longer than 90 days) | |||||||||||
Repayments of debt (original maturities longer than 90 days) | ( | ( | |||||||||
Net increase in debt with original maturities of 90 days or less | |||||||||||
Stock repurchases | ( | ||||||||||
Dividends | ( | ( | |||||||||
| Other | |||||||||||
Net cash provided by (used in) financing activities | ( | ||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | ( | ( | |||||||||
Net increase (decrease) in Cash, Cash Equivalents, and Restricted Cash during the period | ( | ||||||||||
Cash, Cash Equivalents, and Restricted Cash at beginning of the period | |||||||||||
Cash, Cash Equivalents, and Restricted Cash at end of the period | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
4
GATX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(In millions, except per share data)
| Three Months Ended March 31 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Dollars | Shares | Dollars | ||||||||||||||||||||||||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of the period | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at end of the period | |||||||||||||||||||||||||||||||||||||||||||||||
Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of the period | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
Stock repurchases | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Balance at end of the period | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
Additional Paid In Capital | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of the period | |||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation effects | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at end of the period | |||||||||||||||||||||||||||||||||||||||||||||||
Retained Earnings | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of the period | |||||||||||||||||||||||||||||||||||||||||||||||
Net income | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Balance at end of the period | |||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of the period | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at end of the period | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Total Shareholders' Equity | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. Description of Business
As used herein, "GATX," "we," "us," "our," and similar terms refer to GATX Corporation and its subsidiaries, unless indicated otherwise.
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 the first quarter of 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 comprised of our engine leasing operations, which include our ownership in the 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.
NOTE 2. Basis of Presentation
We prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our unaudited condensed consolidated financial statements do not include all of the information and footnotes required for complete financial statements. We have included all of the normal recurring adjustments that we deemed necessary for a fair presentation.
Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results we may achieve for the entire year ending December 31, 2024. In particular, asset remarketing income does not occur evenly throughout the year. For more information, refer to the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2023.
6
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
New Accounting Pronouncements Not Yet Adopted
| Standard/Description | Effective Date and Adoption Considerations | Effect on Financial Statements or Other Significant Matters | ||||||
Income Taxes In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance disclosures for the effective rate reconciliation and income taxes paid. | The new guidance is effective for us beginning with our 2025 Form 10-K, with early adoption permitted. | We continue to assess the effect the new guidance will have on our disclosure. We expect the primary impact to be the level of disaggregation disclosed in the effective rate reconciliation table and the addition of income taxes paid by jurisdiction. | ||||||
Segment Reporting In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, particularly around the disclosure of segment expenses that are regularly reported to the chief operating decision maker ("CODM") and included within each reported measure of segment profit. | The new guidance is effective for us beginning with our 2024 Form 10-K, with early adoption permitted. We plan to adopt this standard for our 2024 Form 10-K. | We are currently assessing whether additional disclosures around significant segment expenses will be required in our segment disclosures. | ||||||
7
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 3. Revenue
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We disaggregate revenue into four categories as presented on our statement of comprehensive income:
Lease Revenue
Lease revenue, which includes operating lease revenue and finance lease revenue, is our primary source of revenue.
Operating Lease Revenue
We lease railcars, locomotives, aircraft spare engines, and tank containers under full-service and net operating leases. We price full-service leases as an integrated service that includes amounts related to maintenance, insurance, and ad valorem taxes. We do not offer stand-alone maintenance service contracts. Operating lease revenue is within the scope of Accounting Standards Codification ("ASC") Topic 842 "Leases" ("Topic 842"), and we have elected not to separate non-lease components from the associated lease component for qualifying leases. Operating lease revenue is recognized on a straight-line basis over the term of the underlying lease. As a result, lease revenue may not be recognized in the same period as maintenance and other costs, which we expense as incurred. Variable rents are recognized when applicable contingencies are resolved. Revenue is not recognized if collectability is not reasonably assured. See "Note 5. Leases".
Finance Lease Revenue
In certain cases, we lease railcars and tank containers that, at lease inception, are classified as finance leases. In accordance with Topic 842, finance lease revenue is recognized using the effective interest method, using the interest rate implicit in the lease. See "Note 5. Leases".
Non-Dedicated Engine Revenue
Certain of our owned aircraft spare engines are part of a pool of non-dedicated spare engines managed under a capacity agreement with Rolls-Royce. Revenue is earned based on our continued ability to meet engine capacity requirements under the agreement, which requires us to enroll a minimum number of engines in a pool of non-dedicated spare engines for short-term lease to Rolls-Royce customers. We recognize revenue based on our right to receive a portion of the revenue earned by the pool, which is calculated based on the average engine flight hours reported for each type of engine enrolled into the pool.
Marine Operating Revenue
Historically, we generated marine operating revenue through shipping services completed by our marine vessels. For vessels that operated in a pooling arrangement, we recognized pool revenue based on the right to receive our portion of net distributions reported by the pool, with net distributions being the net voyage revenue of the pool after deduction of voyage expenses. For vessels that operated outside of a pooling arrangement, we recognized revenue over time as the performance obligation is satisfied, beginning when cargo is loaded through its delivery and discharge. As of the first quarter of 2024, we no longer have marine operating revenue, as all marine vessels were sold as of December 31, 2023.
Other Revenue
Other revenue is comprised of customer liability repair revenue, termination fees, interest income, and other miscellaneous revenues. Select components of other revenue are within the scope of ASC Topic 606, "Revenue from Contracts with Customers". Revenue attributable to terms provided in our lease contracts are variable lease components that are recognized when earned, in accordance with Topic 842.
8
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 4. Operating Assets and Facilities
The following table shows the components of our operating assets and facilities (in millions):
| March 31 2024 | December 31 2023 | ||||||||||
| Railcars and locomotives | $ | $ | |||||||||
| Aircraft spare engines | |||||||||||
| Tank containers | |||||||||||
| Buildings, leasehold improvements, and other equipment | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| Less: allowance for depreciation | ( | ( | |||||||||
| Net operating assets and facilities | $ | $ | |||||||||
Total depreciation expense was $100.5 million for the three months ended March 31, 2024 and $93.5 million for the three months ended March 31, 2023.
NOTE 5. Leases
GATX as Lessor
We lease railcars, locomotives, aircraft spare engines, and tank containers under full-service and net operating leases. We price full-service leases as an integrated service that includes amounts related to maintenance, insurance, and ad valorem taxes. In accordance with applicable guidance, we do not separate lease and non-lease components when reporting revenue for our full-service operating leases. In some cases, we lease railcars and tank containers that, at commencement, are classified as finance leases. For certain operating leases, revenue is based on equipment usage and is recognized when earned. Typically, our leases do not provide customers with renewal options or options to purchase the asset. Our lease agreements do not generally have residual value guarantees. We collect reimbursements from customers for damage to our railcars, as well as additional rental payments for usage above specified levels, as provided in the lease agreements.
The following table shows the components of our lease revenue (in millions):
| Three Months Ended March 31 | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
Operating lease revenue: | |||||||||||||||||||||||
Fixed lease revenue | $ | $ | |||||||||||||||||||||
Variable lease revenue | |||||||||||||||||||||||
Total operating lease revenue | $ | $ | |||||||||||||||||||||
Finance lease revenue | |||||||||||||||||||||||
Total lease revenue | $ | $ | |||||||||||||||||||||
In accordance with the terms of our leases with customers, we may earn additional revenue, primarily for customer liability repairs. This additional revenue is reported in other revenue in the statements of comprehensive income and was $28.7 million for the three months ended March 31, 2024 and $23.9 million for the three months ended March 31, 2023.
9
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 6. Fair Value
The assets and liabilities that GATX records at fair value on a recurring basis consisted entirely of derivatives at March 31, 2024 and December 31, 2023.
In addition, we review long-lived assets, such as operating assets and facilities, investments in affiliates, and goodwill, for impairment whenever circumstances indicate that the carrying amount of these assets may not be recoverable or when assets may be classified as held for sale. We determine the fair value of the respective assets using Level 3 inputs, including estimates of discounted future cash flows, independent appraisals, and market comparables, as applicable.
Derivative Instruments
Fair Value Hedges
We use interest rate swaps to manage the fixed-to-floating rate mix of our debt obligations by converting a portion of our fixed rate debt to floating rate debt. For fair value hedges, we recognize changes in fair value of both the derivative and the hedged item as interest expense. We had four instruments outstanding with an aggregate notional amount of $200.0 million as of March 31, 2024 with maturities ranging from 2025 to 2027 and four instruments outstanding with an aggregate notional amount of $200.0 million as of December 31, 2023 with maturities ranging from 2025 to 2027.
Cash Flow Hedges
We use Treasury rate locks and swap rate locks to hedge our exposure to interest rate risk on anticipated transactions. We also use currency swaps, forwards, and put/call options to hedge our exposure to fluctuations in the exchange rates of foreign currencies for certain loans and operating expenses denominated in non-functional currencies. We had nine instruments outstanding with an aggregate notional amount of $19.7 million as of March 31, 2024 that mature in 2024 and one instrument outstanding with an aggregate notional amount of $131.0 million as of December 31, 2023 that matured in 2024. Within the next 12 months, we expect to reclassify $1.5 million ($1.1 million after-tax) of net losses on previously terminated derivatives from accumulated other comprehensive loss to interest expense. We reclassify these amounts when interest and operating lease expense on the related hedged transactions affect earnings.
Non-Designated Derivatives
We do not hold derivative financial instruments for purposes other than hedging, although certain of our derivatives are not designated as accounting hedges. We recognize changes in the fair value of these derivatives in other income (expense) immediately.
Certain of our derivative instruments contain credit risk provisions that could require us to make immediate payment on net liability positions in the event that we default on certain outstanding debt obligations. The aggregate fair value of our derivative instruments with credit risk related contingent features that were in a liability position was $8.4 million as of March 31, 2024 and $8.0 million as of December 31, 2023. We are not required to post any collateral on our derivative instruments and do not expect the credit risk provisions to be triggered.
In the event that a counterparty fails to meet the terms of an interest rate swap agreement or a foreign exchange contract, our exposure is limited to the fair value of the swap, if in our favor. We manage the credit risk of counterparties by transacting with institutions that we consider financially sound and by avoiding concentrations of risk with a single counterparty. We believe that the risk of non-performance by any of our counterparties is remote.
10
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following table shows our derivative assets and liabilities that are measured at fair value (in millions):
| Significant Observable Inputs (Level 2) | |||||||||||||||||
| Balance Sheet Location | Fair Value March 31, 2024 | Fair Value December 31, 2023 | |||||||||||||||
| Derivative Assets | |||||||||||||||||
| Foreign exchange contracts (1) | Other assets | $ | $ | ||||||||||||||
| Foreign exchange contracts (2) | Other assets | ||||||||||||||||
| Total derivative assets | $ | $ | |||||||||||||||
| Derivative Liabilities | |||||||||||||||||
| Interest rate contracts (1) | Other liabilities | $ | $ | ||||||||||||||
| Foreign exchange contracts (2) | Other liabilities | ||||||||||||||||
| Total derivative liabilities | $ | $ | |||||||||||||||
(1) Designated as hedges.
(2) Not designated as hedges.
We value derivatives using a pricing model with inputs (such as yield curves and foreign currency rates) that are observable in the market or that can be derived principally from observable market data. As of March 31, 2024 and December 31, 2023, all derivatives were classified as Level 2 in the fair value hierarchy. There were no derivatives classified as Level 1 or Level 3.
The following table shows the amounts recorded on the balance sheet related to cumulative basis adjustments for fair value hedges (in millions):
| Carrying Amount of the Hedged Assets/(Liabilities) | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities) | |||||||||||||||||||||||||
| Line Item in the Balance Sheet in Which the Hedged Item is Included | March 31 2024 | December 31 2023 | March 31 2024 | December 31 2023 | ||||||||||||||||||||||
| Recourse debt | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
11
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following tables show the impacts of our derivative instruments on our statements of comprehensive income (in millions):
| Amount of Loss (Gain) Recognized in Other Comprehensive (Loss) Income | |||||||||||||||||||||||||||||||||||
| Three Months Ended March 31 | |||||||||||||||||||||||||||||||||||
| Derivative Designation | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Total | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Location of Loss (Gain) Reclassified from Accumulated Other Comprehensive Loss into Earnings | Amount of Loss (Gain) Reclassified from Accumulated Other Comprehensive Loss into Earnings | ||||||||||||||||||||||||||||||||||
| Three Months Ended March 31 | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Interest expense | $ | $ | |||||||||||||||||||||||||||||||||
| Other income (expense) | ( | ||||||||||||||||||||||||||||||||||
| Total | $ | ( | $ | ||||||||||||||||||||||||||||||||
The following tables show the impact of our fair value and cash flow hedge accounting relationships, as well as the impact of our non-designated derivatives, on the statements of comprehensive income (in millions):
| Amount of Gain (Loss) Recognized in Interest Expense on Fair Value and Cash Flow Hedging Relationships | |||||||||||||||||||||||
| Three Months Ended March 31 | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Total interest expense | $ | ( | $ | ( | |||||||||||||||||||
| Gain (loss) on fair value hedging relationships | |||||||||||||||||||||||
Interest rate contracts: | |||||||||||||||||||||||
Hedged items | ( | ||||||||||||||||||||||
Derivatives designated as hedging instruments | ( | ||||||||||||||||||||||
| Gain (loss) on cash flow hedging relationships | |||||||||||||||||||||||
Interest rate contracts: | |||||||||||||||||||||||
| Amount of loss reclassified from accumulated other comprehensive loss into earnings | ( | ( | |||||||||||||||||||||
12
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| Amount of Gain (Loss) Recognized in Other Income (Expense) on Cash Flow Hedging Relationships and Non-Designated Derivative Contracts | |||||||||||||||||||||||
| Three Months Ended March 31 | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Total other income (expense) | $ | $ | ( | ||||||||||||||||||||
| Gain (loss) on cash flow hedging relationships | |||||||||||||||||||||||
Foreign exchange contracts: | |||||||||||||||||||||||
| Amount of gain reclassified from accumulated other comprehensive loss into earnings (1) | ( | ||||||||||||||||||||||
| Gain (loss) on non-designated derivative contracts | ( | ( | |||||||||||||||||||||
_________
(1) These amounts are substantially offset by foreign currency remeasurement adjustments on related hedged instruments, also recognized in other income (expense).
Other Financial Instruments
Except for derivatives, as disclosed above, GATX has no other assets and liabilities measured at fair value on a recurring basis. The carrying amounts of cash and cash equivalents, restricted cash, rent and other receivables, accounts payable, and commercial paper and borrowings under bank credit facilities with maturities under one year approximate fair value due to the short maturity of those instruments.
We estimate the fair values of fixed and floating rate debt using discounted cash flow analyses that are based on interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The inputs we use to estimate each of these values are classified in Level 2 of the fair value hierarchy because they are directly or indirectly observable inputs.
The following table shows the carrying amounts and fair values of our other financial instruments (in millions):
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Recourse fixed rate debt | $ | $ | $ | $ | |||||||||||||||||||
| Recourse floating rate debt | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
13
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 7. Pension and Other Post-Retirement Benefits
The following table shows the components of net periodic cost for the three months ended March 31, 2024 and 2023 (in millions):
| 2024 Pension Benefits | 2023 Pension Benefits | 2024 Retiree Health and Life | 2023 Retiree Health and Life | ||||||||||||||||||||
Service cost | $ | $ | $ | $ | |||||||||||||||||||
Interest cost | |||||||||||||||||||||||
Expected return on plan assets | ( | ( | |||||||||||||||||||||
Amortization of (1): | |||||||||||||||||||||||
Unrecognized prior service credit | ( | ( | |||||||||||||||||||||
Unrecognized net actuarial loss (gain) | ( | ( | |||||||||||||||||||||
Net periodic cost | $ | $ | $ | $ | |||||||||||||||||||
_________
(1) Amounts reclassified from accumulated other comprehensive loss.
The service cost component of net periodic cost was $1.4 million for the three months ended March 31, 2024 and $1.3 million for the three months ended March 31, 2023 and is recorded in selling, general and administrative expense. The non-service components totaled income of $1.2 million for the three months ended March 31, 2024 and income of $1.0 million for the three months ended March 31, 2023 and are recorded in other income (expense) in the statements of comprehensive income.
NOTE 8. Share-Based Compensation
During the three months ended March 31, 2024, we granted 194,100 non-qualified employee stock options, 31,970 restricted stock units, 38,940 performance shares, and 1,838 restricted stock units awarded to non-employee directors. For the three months ended March 31, 2024, total share-based compensation expense was $5.4 million and the related tax benefits were $1.4 million. For the three months ended March 31, 2023, total share-based compensation expense was $3.5 million and the related tax benefits were $0.9 million.
The estimated fair value of our 2024 non-qualified employee stock option awards and related underlying assumptions are shown in the table below:
| 2024 | |||||
| Weighted-average estimated fair value | $ | ||||
| Quarterly dividend rate | $ | ||||
| Expected term of stock options, in years | |||||
| Risk-free interest rate | % | ||||
| Dividend yield | % | ||||
| Expected stock price volatility | % | ||||
| Present value of dividends | $ | ||||
NOTE 9. Income Taxes
The following table shows our effective income tax rate for the three months ended March 31:
| 2024 | 2023 | ||||||||||
| Effective income tax rate | % | % | |||||||||
The decrease in the effective rate for the current year compared to the prior year was primarily due to the incremental benefits associated with equity awards vested or exercised during the year, as well as the mix of pre-tax income among domestic and foreign jurisdictions, which are taxed at different rates.
14
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 10. Commercial Commitments
We have entered into various commercial commitments, including standby letters of credit and performance bonds. 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.
The following table shows our commercial commitments (in millions):
| March 31 2024 | December 31 2023 | ||||||||||
| Standby letters of credit and performance bonds | $ | $ | |||||||||
| Total commercial commitments (1) | $ | $ | |||||||||
_________
(1) There were no liabilities recorded on the balance sheet for commercial commitments at March 31, 2024 and December 31, 2023. As of March 31, 2024, our outstanding commitments expire in 2024 through 2026. We are not aware of any event that would require us to satisfy any of our commitments.
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.
NOTE 11. Earnings per Share
We compute basic and diluted earnings per share using the two-class method, which is an earnings allocation calculation that determines Earnings Per Share ("EPS") for each class of common stock and participating security. Our vested and exercisable stock options contain non-forfeitable rights to dividends or dividend equivalents and are classified as participating securities in the calculation of EPS. Our unvested stock options, restricted stock units, performance shares and non-employee director awards do not contain nonforfeitable rights to dividends or dividend equivalents and are therefore not classified as participating securities.
The following table shows the computation of our basic and diluted earnings per common share (in millions, except per share amounts):
| Three Months Ended March 31 | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
Basic earnings per share: | |||||||||||||||||||||||
Net income | $ | $ | |||||||||||||||||||||
| Less: Net income allocated to participating securities | ( | ||||||||||||||||||||||
| Net income available to common shareholders | $ | $ | |||||||||||||||||||||
Weighted-average shares outstanding - basic | |||||||||||||||||||||||
Basic earnings per share | $ | $ | |||||||||||||||||||||
| Diluted earnings per share: | |||||||||||||||||||||||
Net income | $ | $ | |||||||||||||||||||||
| Less: Net income allocated to participating securities | ( | ||||||||||||||||||||||
| Net income available to common shareholders | $ | $ | |||||||||||||||||||||
Weighted-average shares outstanding - basic | |||||||||||||||||||||||
Effect of dilutive securities: | |||||||||||||||||||||||
| Equity compensation plans | |||||||||||||||||||||||
Weighted-average shares outstanding - diluted | |||||||||||||||||||||||
Diluted earnings per share | $ | $ | |||||||||||||||||||||
15
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 12. Accumulated Other Comprehensive Loss
The following table shows the change in components for accumulated other comprehensive loss (in millions):
| Foreign Currency Translation Adjustments | Unrealized Loss on Derivative Instruments | Post-Retirement Benefit Plans Adjustments | Total | ||||||||||||||||||||||||||
| Accumulated other comprehensive loss at December 31, 2023 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
| Change in component | ( | ( | |||||||||||||||||||||||||||
| Reclassification adjustments into earnings (1) | ( | ( | |||||||||||||||||||||||||||
| Income tax effect | ( | ( | |||||||||||||||||||||||||||
| Accumulated other comprehensive loss at March 31, 2024 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
_________
(1) See "Note 6. Fair Value" and "Note 7. Pension and Other Post-Retirement Benefits" for impacts of the reclassification adjustments on the statements of comprehensive income.
NOTE 13. Legal Proceedings and Other Contingencies
Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against GATX and certain of our subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved or settled adversely.
On June 30, 2023, a third-party complaint was filed by Norfolk Southern Railway Company and Norfolk Southern Corporation (collectively, “Norfolk Southern”) against GATX and several other parties in the Northern District of Ohio (Eastern Division) for contribution and recovery of environmental damages related to the derailment of a Norfolk Southern train in East Palestine, Ohio that included railcars owned by GATX Corporation. The Company filed a motion to dismiss Norfolk Southern's third-party complaint on September 15, 2023. On March 6, 2024, the Court granted GATX's and the other third-party defendants’ motions and dismissed all Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") claims. The Court also dismissed all state law claims, declining to exercise supplemental jurisdiction over them in light of its dismissal of the CERCLA claims. On March 26, 2024, Norfolk Southern moved the Court for entry of partial final judgment as to the order dismissing the third-party complaint in order to appeal before final judgment the Court’s dismissal order as to GATX and the other third-party defendants.
On July 25, 2023, a separate third-party complaint was filed by Norfolk Southern against GATX and two other defendants in the Northern District of Ohio (Eastern Division) for contribution to personal injury and property damages class claims related to the derailment of the Norfolk Southern train in East Palestine, Ohio. The plaintiffs who had originally filed the complaint against Norfolk Southern ("Plaintiffs") themselves subsequently filed direct claims against GATX and the two other third-party defendants alleging many of the same facts as Norfolk Southern. On September 15, 2023, the Company filed a motion to dismiss Norfolk Southern's third-party complaint, and on September 26, 2023, filed a motion to dismiss the Plaintiffs' complaint. Briefing was completed on October 30, 2023, and the Court issued an order on March 13, 2024, denying in part, and granting in part, the Company’s motion against Norfolk Southern and Plaintiffs. The Court held that Norfolk Southern’s contribution action was premature and dismissed the claim without prejudice but otherwise allowed the remaining claims against GATX to proceed. The Court also dismissed Plaintiffs’ claim for medical monitoring but held that Plaintiffs could seek such damages through their other claims, which could proceed. The Court also consolidated an additional action filed against GATX and others titled Almasy, et al. v. Norfolk Southern Corp., et al. by over 40 individual residents, employees and property owners in East Palestine, Ohio. Plaintiffs and Norfolk Southern have announced a settlement in principle for $600 million to resolve the consolidated class action claims of those within a 20-mile radius from the derailment, and, for those residents who choose to participate, personal injury claims within a 10-mile radius from the derailment. Norfolk Southern’s claims against GATX remain unchanged.
On December 8, 2023, GATX and three other defendants were named as additional defendants in a putative class action lawsuit originally filed in federal court in Pennsylvania against Norfolk Southern by Pennsylvania school districts and school children. The amended complaint seeks monetary damages for the Pennsylvania plaintiffs for personal injury and property damage allegedly related to the derailment. The Company filed a motion to dismiss on February 23, 2024.
The Company intends to vigorously defend itself against each of these lawsuits. At this time, the Company cannot reasonably estimate the loss or range of loss, if any, that may ultimately be incurred in connection with any of these lawsuits and therefore has not established any accruals for potential liability related to this incident.
16
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
For a full discussion of our other pending legal matters, please refer to "Note 23. Legal Proceedings and Other Contingencies" in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023.
NOTE 14. Financial Data of Business Segments
The financial data presented below depicts the profitability, financial position, and capital expenditures of each of our business segments.
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 Trifleet are reported in the Other segment.
Rail North America is composed of our operations in the United States, Canada, and Mexico. Rail North America primarily provides railcars pursuant to full-service leases under which it maintains the railcars, pays ad valorem taxes and insurance, and provides other ancillary services.
Rail International is composed of our operations in Europe ("GATX Rail Europe" or "GRE"), India ("Rail India"), and until January 31, 2023, our rail business in Russia ("Rail Russia"). On January 31, 2023, we completed the sale of Rail Russia and recorded a gain of $0.3 million, which is presented in net gain on asset dispositions in the statements of comprehensive income. GRE primarily leases railcars to customers throughout Europe pursuant to full-service leases under which it maintains the railcars and provides value-added services according to customer requirements. Rail India primarily leases railcars to customers in India pursuant to net leases, under which the lessee assumes responsibility for maintenance of the railcars.
As previously disclosed, in the first quarter of 2024 we changed the name of our Portfolio Management business segment to Engine Leasing to reflect the prospective operations of the segment. Historically, this business segment included marine operations from our Specialized Gas Vessels. As of December 31, 2023, we had sold all of our marine assets and no longer have any marine operations.
Engine Leasing is now almost entirely comprised of our engine leasing operations, which include our ownership in the RRPF affiliates, a group of joint ventures with Rolls-Royce that lease aircraft spare engines, and GEL, our business that directly owns aircraft spare engines that are leased to airline customers or employed in engine capacity agreements. The RRPF affiliates manage all of GEL's aircraft spare engines, for which we paid them a fee of $0.6 million for the three months ended March 31, 2024 and $0.5 million for the three months ended March 31, 2023.
Other includes Trifleet operations, as well as selling, general and administrative expenses, income taxes, and certain other amounts not allocated to the segments.
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.
17
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following tables show certain segment data for each of our business segments (in millions):
Rail North America | Rail International | Engine Leasing | Other | GATX Consolidated | |||||||||||||||||||||||||
Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||
Lease revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Non-dedicated engine revenue | — | — | — | ||||||||||||||||||||||||||
Other revenue | |||||||||||||||||||||||||||||
Total Revenues | |||||||||||||||||||||||||||||
Expenses | |||||||||||||||||||||||||||||
Maintenance expense | |||||||||||||||||||||||||||||
Depreciation expense | |||||||||||||||||||||||||||||
Operating lease expense | |||||||||||||||||||||||||||||
Other operating expense | |||||||||||||||||||||||||||||
Total Expenses | |||||||||||||||||||||||||||||
Other Income (Expense) | |||||||||||||||||||||||||||||
Net gain on asset dispositions | |||||||||||||||||||||||||||||
Interest (expense) income, net | ( | ( | ( | ( | |||||||||||||||||||||||||
Other (expense) income | ( | ||||||||||||||||||||||||||||
Share of affiliates' pre-tax earnings | |||||||||||||||||||||||||||||
Segment profit | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Less: | |||||||||||||||||||||||||||||
Selling, general and administrative expense | |||||||||||||||||||||||||||||
Income taxes (includes $ | |||||||||||||||||||||||||||||
Net income | $ | ||||||||||||||||||||||||||||
Net Gain on Asset Dispositions | |||||||||||||||||||||||||||||
Asset Remarketing Income: | |||||||||||||||||||||||||||||
Net gains on disposition of owned assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Residual sharing income | |||||||||||||||||||||||||||||
Non-remarketing net gains (1) | |||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Capital Expenditures | |||||||||||||||||||||||||||||
Portfolio investments and capital additions | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Selected Balance Sheet Data at March 31, 2024 | |||||||||||||||||||||||||||||
Investments in affiliated companies | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Identifiable assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
_________
(1) Includes net gains (losses) from scrapping of railcars.
18
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Rail North America | Rail International | Engine Leasing | Other | GATX Consolidated | |||||||||||||||||||||||||
Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||
Lease revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Non-dedicated engine revenue | — | — | — | ||||||||||||||||||||||||||
Marine operating revenue | |||||||||||||||||||||||||||||
Other revenue | |||||||||||||||||||||||||||||
Total Revenues | |||||||||||||||||||||||||||||
Expenses | |||||||||||||||||||||||||||||
Maintenance expense | |||||||||||||||||||||||||||||
Marine operating expense | |||||||||||||||||||||||||||||
Depreciation expense | |||||||||||||||||||||||||||||
Operating lease expense | |||||||||||||||||||||||||||||
Other operating expense | |||||||||||||||||||||||||||||
Total Expenses | |||||||||||||||||||||||||||||
Other Income (Expense) | |||||||||||||||||||||||||||||
Net gain (loss) on asset dispositions | ( | ||||||||||||||||||||||||||||
Interest (expense) income, net | ( | ( | ( | ( | |||||||||||||||||||||||||
Other (expense) income | ( | ( | ( | ( | |||||||||||||||||||||||||
Share of affiliates' pre-tax (losses) earnings | ( | ||||||||||||||||||||||||||||
Segment profit | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Less: | |||||||||||||||||||||||||||||
Selling, general and administrative expense | |||||||||||||||||||||||||||||
Income taxes (includes $ | |||||||||||||||||||||||||||||
| Net income | $ | ||||||||||||||||||||||||||||
Net Gain (Loss) on Asset Dispositions | |||||||||||||||||||||||||||||
Asset Remarketing Income: | |||||||||||||||||||||||||||||
Net gains (losses) on disposition of owned assets | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
Residual sharing income | |||||||||||||||||||||||||||||
Non-remarketing net gains (1) | |||||||||||||||||||||||||||||
Asset impairments | ( | ( | |||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
Capital Expenditures | |||||||||||||||||||||||||||||
Portfolio investments and capital additions | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Selected Balance Sheet Data at December 31, 2023 | |||||||||||||||||||||||||||||
Investments in affiliated companies | $ | $ | — | $ | $ | — | $ | ||||||||||||||||||||||
Identifiable assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
_________
(1) Includes net gains (losses) from scrapping of railcars
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this Quarterly Report, Annual Report on Form 10-K for the year ended December 31, 2023, and in our other filings with the Securities and Exchange Commission ("SEC"). 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 Standards ("GAAP") and on certain other financial data that we prepared using non-GAAP components. For a reconciliation of these non-GAAP components to the most comparable GAAP components, see "Non-GAAP Financial Measures" at the end of this item. The discussion and analysis below includes forward-looking statements that are subject to risks, uncertainties and other factors described in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2023 that could cause actual results to differ materially from such forward-looking statements. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
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 the first quarter of 2023, we sold our rail business in Russia ("Rail Russia") within the Rail International segment.
In the first quarter of 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 comprised of our engine leasing operations, which include our ownership in the 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.
Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results we may achieve for the entire year ending December 31, 2024. In particular, asset remarketing income does not occur evenly throughout the year. For more information, refer to the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2023.
DISCUSSION OF OPERATING RESULTS
Net income for the three months ended March 31, 2024 was $74.3 million, or $2.03 per diluted share, compared to $77.4 million, or $2.16 per diluted share, for the same period in 2023. Results for the three months ended March 31, 2024 included a net positive impact of $0.6 million ($0.02 per diluted share) from tax adjustments and other items, compared to a net negative impact of $1.3 million ($0.04 per diluted share) from tax adjustments and other items for the three months ended March 31, 2023. See "Non-GAAP Financial Measures" at the end of this item for further details. Excluding the impact of these items, net income decreased $5.0 million compared to the prior year, largely due to lower asset disposition gains at Rail North America and higher interest expense, partially offset by higher revenue at Rail North America and Rail International and higher non-dedicated engine revenue at Engine Leasing.
20
The following table shows a summary of our reporting segments and consolidated financial results (in millions, except per share data):
| Three Months Ended March 31 | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Segment Revenues | ||||||||||||||
| Rail North America | $ | 265.0 | $ | 238.9 | ||||||||||
| Rail International | 83.7 | 73.3 | ||||||||||||
| Engine Leasing | 21.3 | 16.3 | ||||||||||||
| Other | 9.9 | 10.4 | ||||||||||||
| $ | 379.9 | $ | 338.9 | |||||||||||
| Segment Profit | ||||||||||||||
| Rail North America | $ | 90.3 | $ | 95.2 | ||||||||||
| Rail International | 28.8 | 23.5 | ||||||||||||
| Engine Leasing | 25.7 | 28.3 | ||||||||||||
| Other | 8.2 | 7.9 | ||||||||||||
| 153.0 | 154.9 | |||||||||||||
| Less: | ||||||||||||||
| Selling, general and administrative expense | 55.9 | 50.4 | ||||||||||||
Income taxes (includes $4.2 and $6.9 related to affiliates' earnings) | 22.8 | 27.1 | ||||||||||||
| Net Income (GAAP) | $ | 74.3 | $ | 77.4 | ||||||||||
| Net income, excluding tax adjustments and other items (non-GAAP) (1) | $ | 73.7 | $ | 78.7 | ||||||||||
| Diluted earnings per share (GAAP) | $ | 2.03 | $ | 2.16 | ||||||||||
| Diluted earnings per share, excluding tax adjustments and other items (non-GAAP) (1) | $ | 2.01 | $ | 2.20 | ||||||||||
| Investment Volume | $ | 378.6 | $ | 387.0 | ||||||||||
The following table shows our return on equity for the trailing 12 months ended March 31:
| 2024 | 2023 | ||||||||||
| Return on Equity (GAAP) | 11.6 | % | 7.6 | % | |||||||
| Return on Equity, excluding tax adjustments and other items (non-GAAP) (1) | 11.4 | % | 10.2 | % | |||||||
_________
(1) See "Non-GAAP Financial Measures" at the end of this item for further details.
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.
21
RAIL NORTH AMERICA
Segment Summary
Demand for existing railcars was solid for most railcar types and Rail North America continued to capitalize on current market conditions for both lease rates and lease terms. Utilization was 99.4% at the end of the quarter.
The following table shows Rail North America's segment results (in millions):
| Three Months Ended March 31 | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenues | |||||||||||
| Lease revenue | $ | 236.5 | $ | 215.1 | |||||||
| Other revenue | 28.5 | 23.8 | |||||||||
| Total Revenues | 265.0 | 238.9 | |||||||||
| Expenses | |||||||||||
| Maintenance expense | 72.9 | 66.9 | |||||||||
| Depreciation expense | 65.1 | 65.5 | |||||||||
| Operating lease expense | 9.0 | 9.0 | |||||||||
| Other operating expense | 6.7 | 7.0 | |||||||||
| Total Expenses | 153.7 | 148.4 | |||||||||
| Other Income (Expense) | |||||||||||
| Net gain on asset dispositions | 34.2 | 47.8 | |||||||||
| Interest expense, net | (53.3) | (42.3) | |||||||||
| Other expense | (2.1) | (0.4) | |||||||||
| Share of affiliates' pre-tax earnings (losses) | 0.2 | (0.4) | |||||||||
| Segment Profit | $ | 90.3 | $ | 95.2 | |||||||
| Investment Volume | $ | 321.7 | $ | 296.5 | |||||||
The following table shows the components of Rail North America's lease revenue (in millions):
| Three Months Ended March 31 | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Railcars | $ | 213.7 | $ | 194.8 | |||||||||||||||||||
| Boxcars | 16.2 | 13.8 | |||||||||||||||||||||
| Locomotives | 6.6 | 6.5 | |||||||||||||||||||||
| Total | $ | 236.5 | $ | 215.1 | |||||||||||||||||||
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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 quarter ended:
| March 31 2023 | June 30 2023 | September 30 2023 | December 31 2023 | March 31 2024 | |||||||||||||||||||||||||
| Beginning balance | 100,954 | 101,219 | 100,585 | 100,656 | 101,167 | ||||||||||||||||||||||||
| Railcars added | 1,816 | 358 | 791 | 1,688 | 1,422 | ||||||||||||||||||||||||
| Railcars scrapped | (324) | (316) | (292) | (354) | (375) | ||||||||||||||||||||||||
| Railcars sold | (1,227) | (676) | (428) | (823) | (527) | ||||||||||||||||||||||||
| Ending balance | 101,219 | 100,585 | 100,656 | 101,167 | 101,687 | ||||||||||||||||||||||||
| Utilization rate at quarter end (1) | 99.3 | % | 99.3 | % | 99.3 | % | 99.3 | % | 99.4 | % | |||||||||||||||||||
| Renewal success rate (2) | 77.9 | % | 85.3 | % | 83.6 | % | 87.1 | % | 83.4 | % | |||||||||||||||||||
| Active railcars at quarter end (3) | 100,475 | 99,871 | 99,933 | 100,498 | 101,106 | ||||||||||||||||||||||||
| Average active railcars (4) | 100,552 | 100,230 | 99,796 | 100,197 | 100,677 | ||||||||||||||||||||||||
(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 quarters 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 quarter is calculated using the number of active railcars at the end of each month.
As of March 31, 2024, leases for approximately 16,400 tank and freight cars and approximately 1,800 boxcars were scheduled to expire over the remainder of 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 March 31, 2024, 3,605 railcars have been ordered pursuant to the terms of the agreement, of which 1,600 railcars 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. As of March 31, 2024, 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 the end of the second quarter of 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 The Greenbrier Companies, Inc. on July 26, 2019, and such subsidiary assumed all of ARI's obligations under our long-term supply agreement. As of March 31, 2024, all 7,650 railcars have been ordered, of which 7,634 railcars have been delivered. All railcars covered under this agreement are expected to be delivered by the end of the second quarter of 2024.
23
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.
During the first quarter of 2024, the renewal rate change of the LPI was positive 33.0%, compared to positive 33.5% in the prior quarter, and positive 28.3% in the first quarter of 2023. Lease terms on renewals for railcars in the LPI averaged 64 months in the current quarter, compared to 65 months in the prior quarter, and 55 months in the first quarter of 2023.
24
The following table shows fleet activity and statistics for Rail North America boxcars for the quarter ended:
| March 31 2023 | June 30 2023 | September 30 2023 | December 31 2023 | March 31 2024 | |||||||||||||||||||||||||
| Beginning balance | 8,663 | 8,789 | 8,959 | 9,087 | 9,311 | ||||||||||||||||||||||||
| Boxcars added | 229 | 279 | 316 | 424 | 587 | ||||||||||||||||||||||||
| Boxcars scrapped | (103) | (109) | (95) | (152) | (228) | ||||||||||||||||||||||||
| Boxcars sold | — | — | (93) | (48) | — | ||||||||||||||||||||||||
| Ending balance | 8,789 | 8,959 | 9,087 | 9,311 | 9,670 | ||||||||||||||||||||||||
| Utilization rate at quarter end (1) | 100.0 | % | 99.8 | % | 99.7 | % | 100.0 | % | 99.8 | % | |||||||||||||||||||
| Active boxcars at quarter end (2) | 8,788 | 8,942 | 9,062 | 9,310 | 9,651 | ||||||||||||||||||||||||
| Average active railcars (3) | 8,720 | 8,855 | 8,985 | 9,207 | 9,583 | ||||||||||||||||||||||||
_________
(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 quarters are impacted by the utilization of new boxcars purchased from builders or in the secondary market and the disposition of boxcars that were sold or scrapped, as well as the fleet utilization rate.
(3) Average active boxcars is calculated using the number of active boxcars at the end of each month.
Comparison of Reported Results
Segment Profit
In the three months ended March 31, 2024, segment profit of $90.3 million decreased 5.1% compared to $95.2 million for the same period in the prior year. The decrease was primarily due to lower net gain on asset dispositions and higher interest expense, partially offset by higher lease revenue. The amount and timing of disposition gains is dependent on a number of factors and may vary materially from period to period.
25
Revenues
In the three months ended March 31, 2024, lease revenue increased $21.4 million, or 9.9%, driven by higher lease rates and more railcars on lease. Other revenue increased $4.7 million due to higher repair revenue.
Expenses
In the three months ended March 31, 2024, maintenance expense increased $6.0 million, driven by higher costs of repairs and more regulatory compliance events. Depreciation expense decreased $0.4 million due to a change in the useful lives of certain railcars, partially offset by the timing of new railcar investments and dispositions. Other operating expense decreased $0.3 million primarily due to lower switching and freight costs.
Other Income (Expense)
In the three months ended March 31, 2024, net gain on asset dispositions decreased $13.6 million due to fewer railcars sold, lower gains on railcars converted to finance leases, and lower net scrapping gains. The amount and timing of disposition gains is dependent on a number of factors and may vary materially from period to period. Net interest expense increased $11.0 million, driven by a higher average interest rate and a higher average debt balance.
Investment Volume
During the three months ended March 31, 2024, investment volume was $321.7 million compared to $296.5 million in the same period in 2023. We acquired 1,073 newly built railcars and purchased 822 railcars in the secondary market in the three months ended March 31, 2024, compared to 781 newly built railcars and 1,021 railcars in the secondary market in the same period in 2023.
Our investment volume is predominantly composed of acquired railcars, but also includes certain capitalized repairs and improvements to owned railcars and our maintenance facilities. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of railcars purchased, which may include tank cars and freight cars, as well as newly manufactured railcars or those purchased in the secondary market.
RAIL INTERNATIONAL
Segment Summary
Rail International, composed primarily of GATX Rail Europe ("GRE"), produced solid operating results in the first three months of 2024 and continued to grow its fleet. GRE experienced renewal lease rate increases for most railcar types in the period. Utilization was 95.3% at the end of the quarter.
Our rail business in India ("Rail India") increased its fleet size in the first three months of 2024 and 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 robust, driven by continued growth in the economy and infrastructure development. Utilization was 100.0% at the end of the quarter.
In the first quarter of 2023, we sold Rail Russia and recorded a gain of $0.3 million upon completion of the sale.
26
The following table shows Rail International's segment results (in millions):
| Three Months Ended March 31 | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Lease revenue | $ | 80.6 | $ | 70.4 | |||||||||||||||||||
| Other revenue | 3.1 | 2.9 | |||||||||||||||||||||
| Total Revenues | 83.7 | 73.3 | |||||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Maintenance expense | 17.5 | 15.9 | |||||||||||||||||||||
| Depreciation expense | 18.9 | 15.7 | |||||||||||||||||||||
| Other operating expense | 3.5 | 2.2 | |||||||||||||||||||||
| Total Expenses | 39.9 | 33.8 | |||||||||||||||||||||
| Other Income (Expense) | |||||||||||||||||||||||
| Net gain on asset dispositions | 1.3 | 0.8 | |||||||||||||||||||||
| Interest expense, net | (16.7) | (12.5) | |||||||||||||||||||||
| Other income (expense) | 0.4 | (4.3) | |||||||||||||||||||||
| Segment Profit | $ | 28.8 | $ | 23.5 | |||||||||||||||||||
| Investment Volume | $ | 49.9 | $ | 81.1 | |||||||||||||||||||
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GRE Fleet Data
The following table shows fleet activity and statistics for GRE railcars for the quarter ended:
| March 31 2023 | June 30 2023 | September 30 2023 | December 31 2023 | March 31 2024 | |||||||||||||||||||||||||
| Beginning balance | 28,005 | 28,461 | 28,759 | 29,102 | 29,216 | ||||||||||||||||||||||||
| Railcars added | 502 | 376 | 446 | 371 | 322 | ||||||||||||||||||||||||
| Railcars scrapped or sold | (46) | (78) | (103) | (257) | (167) | ||||||||||||||||||||||||
| Ending balance | 28,461 | 28,759 | 29,102 | 29,216 | 29,371 | ||||||||||||||||||||||||
| Utilization rate at quarter end (1) | 98.5 | % | 96.9 | % | 96.0 | % | 95.9 | % | 95.3 | % | |||||||||||||||||||
| Active railcars at quarter end (2) | 28,031 | 27,875 | 27,947 | 28,004 | 27,998 | ||||||||||||||||||||||||
| Average active railcars (3) | 27,931 | 27,973 | 27,884 | 28,003 | 27,984 | ||||||||||||||||||||||||
_________
(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 quarters 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 quarter is calculated using the number of active railcars at the end of each month.
The decline in GRE's fleet utilization was primarily due to weakness in the intermodal market. At March 31, 2024, GRE owned 2,159 intermodal railcars. As of March 31, 2024, leases for approximately 7,647 railcars were scheduled to expire over the remainder of 2024. This amount excludes railcars on leases expiring in 2024 that have already been renewed or assigned to a new lessee.
28
Rail India Fleet Data
The following table shows fleet activity and statistics for Rail India railcars for the quarter ended:
| March 31 2023 | June 30 2023 | September 30 2023 | December 31 2023 | March 31 2024 | |||||||||||||||||||||||||
| Beginning balance | 5,872 | 6,351 | 6,927 | 7,884 | 8,805 | ||||||||||||||||||||||||
| Railcars added | 479 | 576 | 957 | 921 | 696 | ||||||||||||||||||||||||
| Ending balance | 6,351 | 6,927 | 7,884 | 8,805 | 9,501 | ||||||||||||||||||||||||
| Utilization rate at quarter end (1) | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||
| Active railcars at quarter end (2) | 6,351 | 6,927 | 7,884 | 8,805 | 9,501 | ||||||||||||||||||||||||
| Average active railcars (3) | 6,038 | 6,584 | 7,366 | 8,321 | 9,089 | ||||||||||||||||||||||||
_________
(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 quarters are impacted by the utilization of newly built railcars and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.
(3) Average active railcars for the quarter 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 the three months ended March 31, 2024, fluctuations in the value of the euro, relative to the U.S. dollar, positively impacted lease revenue by approximately $1.0 million and negatively impacted segment profit, excluding other income (expense), by approximately $0.1 million compared to the same period in 2023.
29
Segment Profit
In the three months ended March 31, 2024, segment profit of $28.8 million increased 22.6% compared to $23.5 million for the same period in the prior year. 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 these items, results for Rail International were $5.6 million higher compared to the same period in the prior year. 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 and maintenance expense at GRE.
Revenues
In the three months ended March 31, 2024, lease revenue increased $10.2 million, or 14.5%, 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 $0.2 million, driven by higher repair revenue.
Expenses
In the three months ended March 31, 2024, maintenance expense increased $1.6 million, primarily due to more repairs performed, higher costs for repairs, higher wheelset costs, and the impact of foreign exchange rates. Depreciation expense increased $3.2 million, due the impact of new railcars added to the fleet.
Other Income (Expense)
In the three months ended March 31, 2024, net gain on asset dispositions increased $0.5 million, driven by higher net scrapping gains due to more railcars scrapped at a higher scrap price per ton. Net interest expense increased $4.2 million, due to a higher average debt balance and a higher average interest rate. Other income (expense) was favorable by $4.7 million, driven by the positive impact of changes in foreign exchange rates, primarily euro-zloty fluctuations.
Investment Volume
During the three months ended March 31, 2024, investment volume was $49.9 million compared to $81.1 million in the same period in 2023. In the three months ended March 31, 2024, GRE acquired 322 newly built railcars compared to 502 newly built railcars for the same period in 2023, and Rail India acquired 696 newly built railcars in the current year compared to 479 newly built railcars for the same period in 2023.
Our investment volume is predominantly composed of acquired railcars, but also includes 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 car types acquired, as well as fluctuations in the exchange rates of the foreign currencies in which Rail International conducts business.
30
ENGINE LEASING
Segment Summary
As disclosed previously, as of December 31, 2023, we have sold all of our marine assets 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'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, a leading manufacturer of commercial aircraft jet engines. Segment profit included earnings from the RRPF affiliates of $23.7 million for the three months ended March 31, 2024, compared to $28.0 million for the same periods in 2023. The operating environment for the RRPF affiliates was robust, and demand for international air passenger travel remained strong.
Engine Leasing also includes GEL, our wholly owned entity that invests directly in aircraft spare engines. As of March 31, 2024, GEL owned 29 aircraft spare engines, with 14 on long-term leases with airline 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, for which we paid them a fee of $0.6 million for the three months ended March 31, 2024 and $0.5 million for the three months ended March 31, 2023.
The following table shows Engine Leasing’s segment results (in millions):
| Three Months Ended March 31 | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenues | |||||||||||
| Lease revenue | $ | 8.1 | $ | 8.3 | |||||||
| Non-dedicated engine revenue | 13.2 | 4.5 | |||||||||
| Marine operating revenue | — | 3.5 | |||||||||
| Total Revenues | 21.3 | 16.3 | |||||||||
| Expenses | |||||||||||
| Marine operating expense | — | 2.0 | |||||||||
| Depreciation expense | 8.4 | 5.4 | |||||||||
| Other operating expense | 2.5 | 0.9 | |||||||||
| Total Expenses | 10.9 | 8.3 | |||||||||
| Other Income (Expense) | |||||||||||
| Net gain (loss) on asset dispositions | 0.6 | (1.5) | |||||||||
| Interest expense, net | (9.3) | (5.7) | |||||||||
| Other income (expense) | 0.3 | (0.5) | |||||||||
| Share of affiliates' pre-tax earnings | 23.7 | 28.0 | |||||||||
| Segment Profit | $ | 25.7 | $ | 28.3 | |||||||
31
The following table shows the net book values of Engine Leasing's assets (in millions):
| March 31 2023 | June 30 2023 | September 30 2023 | December 31 2023 | March 31 2024 | |||||||||||||||||||||||||
| Investment in RRPF Affiliates | $ | 597.2 | $ | 611.3 | $ | 626.5 | $ | 626.8 | $ | 647.2 | |||||||||||||||||||
| GEL owned aircraft spare engines | 469.6 | 702.5 | 722.4 | 714.0 | 705.6 | ||||||||||||||||||||||||
| Specialized Gas Vessels | 15.2 | 8.9 | 11.4 | — | — | ||||||||||||||||||||||||
| Other owned assets | 41.8 | 48.9 | 9.1 | 14.3 | 23.3 | ||||||||||||||||||||||||
| Total assets | $ | 1,123.8 | $ | 1,371.6 | $ | 1,369.4 | $ | 1,355.1 | $ | 1,376.1 | |||||||||||||||||||
RRPF Affiliates' Portfolio Data
The following table shows portfolio activity and statistics for the RRPF affiliates' aircraft spare engines for the quarter ended:
| March 31 2023 | June 30 2023 | September 30 2023 | December 31 2023 | March 31 2024 | |||||||||||||||||||||||||
| Beginning balance | 398 | 395 | 392 | 395 | 399 | ||||||||||||||||||||||||
| Engine acquisitions | 1 | 3 | 5 | 5 | 8 | ||||||||||||||||||||||||
| Engine dispositions | (4) | (6) | (2) | (1) | (2) | ||||||||||||||||||||||||
| Ending balance | 395 | 392 | 395 | 399 | 405 | ||||||||||||||||||||||||
| Utilization rate at quarter end (1) | 94.4 | % | 95.9 | % | 95.7 | % | 95.5 | % | 97.3 | % | |||||||||||||||||||
| Average leased engines (2) | 374 | 375 | 377 | 379 | 386 | ||||||||||||||||||||||||
| Net book value of engines (in millions) | $ | 4,088.2 | $ | 4,106.6 | $ | 4,100.9 | $ | 4,067.2 | $ | 4,157.2 | |||||||||||||||||||
_________
(1) Utilization is calculated as the number of engines on lease as a percentage of total engines in the fleet.
(2) Average leased engines is calculated using the number of leased engines at the end of each month.
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GEL Portfolio Data
The following table shows portfolio activity for GEL's aircraft spare engines for the quarter ended:
| March 31 2023 | June 30 2023 | September 30 2023 | December 31 2023 | March 31 2024 | |||||||||||||||||||||||||
| Beginning balance | 19 | 19 | 28 | 29 | 29 | ||||||||||||||||||||||||
| Engines added | — | 9 | 1 | — | — | ||||||||||||||||||||||||
| Ending balance | 19 | 28 | 29 | 29 | 29 | ||||||||||||||||||||||||
Comparison of Reported Results
Segment Profit
In the three months ended March 31, 2024, segment profit was $25.7 million, compared to segment profit of $28.3 million for the same period in the prior year. Segment profit included $0.6 million of gains in 2024 and $1.6 million of losses in 2023 associated with the Specialized Gas Vessels. Excluding the impact of these items, results for Engine Leasing were $4.8 million lower than 2023. Lower earnings at the RRPF affiliates, resulting from lower remarketing income, was partially offset by higher earnings from GEL operations.
Revenues
In the three months ended March 31, 2024, lease revenue was comparable to the same period in the prior year. Non-dedicated engine revenue increased $8.7 million due to aircraft spare engines acquired in 2023 and utilized in the engine capacity agreement with Rolls-Royce. Marine operating revenue decreased $3.5 million, driven by the final sales of the Specialized Gas Vessels in 2023.
Expenses
In the three months ended March 31, 2024, marine operating expense decreased $2.0 million, due to the sale of the Specialized Gas Vessels in 2023. Depreciation expense increased $3.0 million, due to aircraft spare engines acquired in 2023.
Other Income (Expense)
In the three months ended March 31, 2024, net gain (loss) on asset dispositions was favorable by $2.1 million, driven by the absence of losses recorded in 2023 and the gain recorded in 2024 related to post-closing adjustments on the sales of the Specialized Gas Vessels.
In the three months ended March 31, 2024, income from our share of affiliates' earnings decreased $4.3 million, driven by lower remarketing income, partially offset by higher income from operations.
33
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.
The following table shows components of Other (in millions):
| Three Months Ended March 31 | |||||||||||
| 2024 | 2023 | ||||||||||
| Trifleet revenue | $ | 9.9 | $ | 10.4 | |||||||
| Trifleet segment profit | $ | 2.7 | $ | 3.7 | |||||||
| Unallocated interest income | 3.5 | 3.0 | |||||||||
| Other income, including eliminations | 2.0 | 1.2 | |||||||||
| Segment Profit | $ | 8.2 | $ | 7.9 | |||||||
| Selling, general and administrative expense | $ | 55.9 | $ | 50.4 | |||||||
| Investment Volume | $ | 7.0 | $ | 9.4 | |||||||
Trifleet Summary
The tank container leasing market continued to experience softer demand across certain regions in the first quarter of 2024. However, Trifleet continued to find opportunities to place its tank containers with customers. Utilization was 85.5% at the end of the quarter.
Trifleet Tank Container Data
The following table shows fleet statistics for Trifleet's tank containers for the quarter ended:
| March 31 2023 | June 30 2023 | September 30 2023 | December 31 2023 | March 31 2024 | |||||||||||||||||||||||||
| Ending balance - owned and managed | 22,528 | 22,870 | 23,333 | 23,931 | 24,448 | ||||||||||||||||||||||||
| Utilization rate at quarter-end - owned and managed (1) | 93.1 | % | 91.5 | % | 89.6 | % | 87.3 | % | 85.5 | % | |||||||||||||||||||
(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 $5.5 million for the three months ended March 31, 2024 compared to the same period in the prior year, driven by higher employee-related expenses, including higher share-based compensation expense.
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.
Consolidated Income Taxes
See "Note 9. Income Taxes" in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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CASH FLOW DISCUSSION
We generate a significant amount of cash from operating activities and investment portfolio proceeds. We also access domestic and international capital markets by issuing unsecured or secured debt and commercial paper. We use these resources, along with available cash balances, to fulfill our debt, lease, and dividend obligations, to support our share repurchase programs, and to fund portfolio investments and capital additions. We primarily use cash from operations to fund daily operations. The timing of asset dispositions and changes in working capital impact cash flows from portfolio proceeds and operations. As a result, these cash flow components may vary materially from quarter to quarter and year to year.
As of March 31, 2024, we had an unrestricted cash balance of $479.1 million. We also have a $600 million, 5-year unsecured revolving credit facility in the United States that matures in 2028 and $250 million 3-year unsecured revolving credit facility in the United States that matures in 2026, both of which are fully available as of March 31, 2024.
The following table shows our cash flows from operating, investing and financing activities for the three months ended March 31 (in millions):
| 2024 | 2023 | ||||||||||||||||
Net cash provided by operating activities | $ | 97.6 | $ | 95.0 | |||||||||||||
Net cash used in investing activities | (311.6) | (122.9) | |||||||||||||||
Net cash provided by (used in) financing activities | 245.0 | (98.3) | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (2.6) | (0.2) | |||||||||||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash during the period | $ | 28.4 | $ | (126.4) | |||||||||||||
Net Cash Provided by Operating Activities
Net cash provided by operating activities for the three months ended March 31, 2024 increased $2.6 million compared to the same period in 2023. Comparability among reporting periods is impacted by the timing of changes in working capital items. Specifically, higher cash receipts from revenue and lower payments for income taxes and operating leases were partially offset by higher payments for maintenance and other operating expenses.
Net Cash Used in Investing Activities
The following table shows our principal sources and uses of cash flows from investing activities for the three months ended March 31 (in millions):
| 2024 | 2023 | ||||||||||||||||
Portfolio investments and capital additions (1) | $ | (378.6) | $ | (387.0) | |||||||||||||
Portfolio proceeds (2) | 59.7 | 108.2 | |||||||||||||||
| Proceeds from short-term investments (3) | — | 150.0 | |||||||||||||||
Other investing activity | 7.3 | 5.9 | |||||||||||||||
Net cash used in investing activities | $ | (311.6) | $ | (122.9) | |||||||||||||
_________
(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 decrease in portfolio investments and capital additions of $8.4 million for the three months ended March 31, 2024 was primarily due to fewer railcars acquired at GRE and fewer tank containers acquired at Trifleet, partially offset by more railcars acquired at Rail North America. The timing of investments depends on purchase commitments, transaction opportunities, and market conditions.
Portfolio proceeds decreased by $48.5 million for the three months ended March 31, 2024, resulting from fewer railcars sold at Rail North America in the current year and the absence of proceeds from the sale of Rail Russia at Rail International and one Specialized Gas Vessel at Engine Leasing in the prior year.
35
Net Cash Provided by (Used in) Financing Activities
The following table shows our principal sources and uses of cash flows from financing activities for the three months ended March 31 (in millions):
| 2024 | 2023 | ||||||||||||||||
Net proceeds from issuance of debt (original maturities longer than 90 days) | $ | 557.4 | $ | 165.4 | |||||||||||||
| Repayments of debt (original maturities longer than 90 days) | (300.0) | (250.0) | |||||||||||||||
| Net increase in debt with original maturities of 90 days or less | — | 2.8 | |||||||||||||||
| Dividends | (22.0) | (20.9) | |||||||||||||||
| Stock repurchases (1) | (4.6) | — | |||||||||||||||
| Other | 14.2 | 4.4 | |||||||||||||||
Net cash provided by (used in) financing activities | $ | 245.0 | $ | (98.3) | |||||||||||||
_________
(1) In the three months ended March 31, 2024 we repurchased 36,744 shares of common stock for $4.6 million. In the three months ended March 31, 2023, we did not repurchase any shares of common stock.
The following table shows the activity on our long-term debt principal in the three months ended March 31, 2024 (in millions):
| December 31 2023 | Issuances | Payments | Impact of Foreign Exchange Rates | March 31 2024 | |||||||||||||||||||||||||
| U.S. debt | $ | 6,450.0 | $ | 350.0 | $ | (300.0) | $ | — | $ | 6,500.0 | |||||||||||||||||||
| Europe debt (1) | 899.6 | 186.4 | — | (22.1) | 1,063.9 | ||||||||||||||||||||||||
| India debt (2) | 101.0 | 24.1 | — | (0.4) | 124.7 | ||||||||||||||||||||||||
Total debt principal | $ | 7,450.6 | $ | 560.5 | $ | (300.0) | $ | (22.5) | $ | 7,688.6 | |||||||||||||||||||
__________
(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.
In the three months ended March 31, 2024, we issued $350.0 million of 3-year unsecured debt in the U.S. at a fixed rate of 5.430%, $132.0 million of 2-year unsecured debt at Trifleet at a floating rate of 3-month Euribor plus 162.5 basis points, $54.4 million of 7-year unsecured debt at GRE at a floating rate of 6-month Euribor plus 175.0 basis points, and drew $24.1 million in two tranches from a 5-year delayed draw term loan at Rail India at fixed rates of 8.43% and 8.55%.
LIQUIDITY AND CAPITAL RESOURCES
General
We fund our investments and meet our debt, lease, and dividend obligations using our available cash balances, as well as cash generated from operating activities, sales of assets, commercial paper issuances, committed revolving credit facilities, distributions from affiliates, and issuances of secured and unsecured debt. We primarily use cash from operations to fund daily operations. We use both domestic and international capital markets and banks to meet our debt financing needs.
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Material Cash Obligations
The following table shows our material cash obligations, including debt principal and related interest payments, lease payments, and purchase commitments at March 31, 2024 (in millions):
| Material Cash Obligations by Period | |||||||||||||||||||||||||||||||||||||||||
| Total | 2024 (1) | 2025 | 2026 | 2027 | 2028 | Thereafter | |||||||||||||||||||||||||||||||||||
Recourse debt | $ | 7,688.6 | $ | 221.2 | $ | 646.4 | $ | 608.5 | $ | 805.6 | $ | 733.7 | $ | 4,673.2 | |||||||||||||||||||||||||||
Interest on recourse debt (2) | 2,753.3 | 254.7 | 317.4 | 296.8 | 264.8 | 231.4 | 1,388.2 | ||||||||||||||||||||||||||||||||||
Commercial paper and credit facilities | 10.8 | 10.8 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Operating lease obligations | 244.9 | 26.0 | 36.8 | 45.3 | 38.7 | 25.3 | 72.8 | ||||||||||||||||||||||||||||||||||
Purchase commitments (3) | 2,365.9 | 636.5 | 427.0 | 527.5 | 396.2 | 378.7 | — | ||||||||||||||||||||||||||||||||||
Total | $ | 13,063.5 | $ | 1,149.2 | $ | 1,427.6 | $ | 1,478.1 | $ | 1,505.3 | $ | 1,369.1 | $ | 6,134.2 | |||||||||||||||||||||||||||
_________
(1) For the remainder of the year.
(2) For floating rate debt, future interest payments are based on the applicable interest rate as of March 31, 2024.
(3) 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.
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, expiring in May 2028. As of March 31, 2024, 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, expiring in May 2026. As of March 31, 2024, 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 March 31, 2024, €25.0 million was available under these credit facilities. At March 31, 2024, we had $10.8 million of outstanding short-term borrowings under bank credit facilities at our European subsidiaries. The weighted average interest rate of these outstanding borrowings during the first three months ended March 31, 2024 was 4.5%.
Restrictive Covenants
Our $600 million and $250 million revolving credit facilities contain various restrictive covenants, including requirements to maintain a fixed charge coverage ratio and an asset coverage test. Some of our bank term loans have the same financial covenants as these facilities.
The indentures for our public debt also contain various restrictive covenants, including limitations on liens provisions that restrict the amount of additional secured indebtedness that we may incur. Additionally, certain exceptions to the covenants permit us to incur an unlimited amount of purchase money and nonrecourse indebtedness.
At March 31, 2024, our European rail subsidiaries had outstanding term loans, public debt, and private placement debt balances totaling €875.0 million. The loans are guaranteed by GATX Corporation and are subject to similar restrictive covenants as the revolving credit facility noted above.
At March 31, 2024, we were in compliance with all covenants and conditions of all of our credit agreements. We do not anticipate any covenant violations nor do we expect that any of these covenants will restrict our operations or our ability to obtain additional financing.
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Credit Ratings
The global capital market environment and outlook may affect our funding options and our financial performance. Our access to capital markets at competitive rates depends on our credit rating and rating outlook, as determined by rating agencies.
The following table shows our credit rating and rating outlook as of March 31, 2024:
| Rating Agency | |||||||||||||||||
| Standard & Poor's | Moody's Investor Service | Fitch Ratings, Inc | |||||||||||||||
| Long-term unsecured debt | BBB | Baa2 | BBB+ | ||||||||||||||
| Short-term unsecured debt | A-2 | P-2 | F2 | ||||||||||||||
| Rating outlook | Stable | Positive | Stable | ||||||||||||||
Leverage
Leverage is expressed as a ratio of debt (including debt and lease obligations, net of unrestricted cash) to equity. The following table shows the components of recourse leverage (in millions, except recourse leverage ratio):
| March 31 2024 | December 31 2023 | September 30 2023 | June 30 2023 | March 31 2023 | |||||||||||||||||||||||||
| Debt and lease obligations, net of unrestricted cash: | |||||||||||||||||||||||||||||
| Unrestricted cash | $ | (479.1) | $ | (450.7) | $ | (203.1) | $ | (317.5) | $ | (177.4) | |||||||||||||||||||
Commercial paper and bank credit facilities | 10.8 | 11.0 | 12.3 | 10.9 | 20.3 | ||||||||||||||||||||||||
Recourse debt | 7,624.5 | 7,388.1 | 6,835.6 | 6,785.6 | 6,360.9 | ||||||||||||||||||||||||
Operating lease obligations | 215.2 | 226.8 | 233.2 | 241.1 | 246.2 | ||||||||||||||||||||||||
| Total debt and lease obligations, net of unrestricted cash | $ | 7,371.4 | $ | 7,175.2 | $ | 6,878.0 | $ | 6,720.1 | $ | 6,450.0 | |||||||||||||||||||
| Total recourse debt (1) | $ | 7,371.4 | $ | 7,175.2 | $ | 6,878.0 | $ | 6,720.1 | $ | 6,450.0 | |||||||||||||||||||
| Shareholders' Equity | $ | 2,324.3 | $ | 2,273.0 | $ | 2,174.5 | $ | 2,178.9 | $ | 2,101.5 | |||||||||||||||||||
| Recourse Leverage (2) | 3.2 | 3.2 | 3.2 | 3.1 | 3.1 | ||||||||||||||||||||||||
_________
(1) Includes recourse debt, commercial paper and bank credit facilities, and operating and finance lease obligations, net of unrestricted cash.
(2) Calculated as total recourse debt / shareholder's equity.
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 authorization 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 the three months ended March 31, 2024, we repurchased 36,744 shares of common stock for $4.6 million, excluding commissions. No share repurchases were completed during the same period in 2023. As of March 31, 2024, $82.5 million remained available under the repurchase authorization.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no changes to our critical accounting policies during the three months ended March 31, 2024. Refer to our Annual Report on Form 10-K for the year ended December 31, 2023, for a summary of our policies.
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NON-GAAP FINANCIAL MEASURES
In addition to financial results reported in accordance with GAAP, we compute certain financial measures using non-GAAP components, as defined by the SEC. These measures are not in accordance with, or a substitute for, GAAP, and our financial measures may be different from non-GAAP financial measures used by other companies. We have provided a reconciliation of our non-GAAP components to the most directly comparable GAAP components.
Reconciliation of Non-GAAP Components Used in the Computation of Certain Financial Measures
We exclude the effects of certain tax adjustments and other items for purposes of presenting net income, diluted earnings per share, and return on equity because we believe these items are not attributable to our business operations. Management utilizes net income, excluding tax adjustments and other items, when analyzing financial performance because such amounts reflect the underlying operating results that are within management’s ability to influence. Accordingly, we believe presenting this information provides investors and other users of our financial statements with meaningful supplemental information for purposes of analyzing year-to-year financial performance on a comparable basis and assessing trends.
The following tables show our net income and diluted earnings per share, excluding tax adjustments and other items (in millions, except per share data):
| Impact of Tax Adjustments and Other Items on Net Income: | |||||||||||
| Three Months Ended March 31 | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income (GAAP) | $ | 74.3 | $ | 77.4 | |||||||
| Adjustments attributable to consolidated pre-tax income: | |||||||||||
| (Gain) loss on Specialized Gas Vessels at Engine Leasing (1) | $ | (0.6) | $ | 1.6 | |||||||
| Net gain on Rail Russia at Rail International (2) | — | (0.3) | |||||||||
| Total adjustments attributable to consolidated pre-tax income | $ | (0.6) | $ | 1.3 | |||||||
| Net income, excluding tax adjustments and other items (non-GAAP) | $ | 73.7 | $ | 78.7 | |||||||
| Impact of Tax Adjustments and Other Items on Diluted Earnings per Share: | |||||||||||
| Three Months Ended March 31 | |||||||||||
| 2024 | 2023 | ||||||||||
| Diluted earnings per share (GAAP) | $ | 2.03 | $ | 2.16 | |||||||
| Adjustments attributable to consolidated income, net of taxes: | |||||||||||
| (Gain) loss on Specialized Gas Vessels at Engine Leasing (1) | (0.02) | 0.05 | |||||||||
| Net gain on Rail Russia at Rail International (2) | — | (0.01) | |||||||||
| Diluted earnings per share, excluding tax adjustments and other items (non-GAAP)* | $ | 2.01 | $ | 2.20 | |||||||
_________
* Sum of individual components may not be additive due to rounding.
39
The following tables show our net income and return on equity, excluding tax adjustments and other items, for the trailing 12 months ended March 31 (in millions):
| 2024 | 2023 | ||||||||||
| Net income (GAAP) | $ | 256.1 | $ | 157.5 | |||||||
| Adjustments attributable to consolidated pre-tax income: | |||||||||||
| Net loss on Specialized Gas Vessels at Engine Leasing (1) | $ | 1.8 | $ | 35.9 | |||||||
| Net loss on Rail Russia at Rail International (2) | — | 14.3 | |||||||||
| Environmental remediation costs (3) | — | 5.9 | |||||||||
| Total adjustments attributable to consolidated pre-tax income | $ | 1.8 | $ | 56.1 | |||||||
| Income taxes thereon, based on applicable effective tax rate | $ | — | $ | (1.5) | |||||||
| Other income tax adjustments attributable to consolidated income: | |||||||||||
| Income tax rate change (4) | $ | (3.0) | $ | — | |||||||
| Net operating loss valuation allowance adjustment (5) | (2.3) | — | |||||||||
| Total other income tax adjustments attributable to consolidated income | $ | (5.3) | $ | — | |||||||
| Net income, excluding tax adjustments and other items (non-GAAP) | $ | 252.6 | $ | 212.1 | |||||||
(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. As of December 31, 2023, all vessels had been sold.
(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) Deferred income tax adjustment attributable to state tax rate reductions in 2023.
(5) Valuation allowance adjustment associated with the realizability of state net operating losses in future tax years.
| 2024 | 2023 | ||||||||||
| Return on Equity (GAAP) | 11.6 | % | 7.6 | % | |||||||
| Return on Equity, excluding tax adjustments and other items (non-GAAP) | 11.4 | % | 10.2 | % | |||||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Since December 31, 2023, there have been no material changes in our interest rate and foreign currency exposures or types of derivative instruments used to hedge these exposures. For a discussion of our exposure to market risk, refer to "Item 7A. Quantitative and Qualitative Disclosure about Market Risk" of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended March 31, 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information concerning litigation and other contingencies is described in "Note 13. Legal Proceedings and Other Contingencies" in Part I, Item 1 of this Quarterly Report on Form 10-Q and is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes in our risk factors since December 31, 2023. For a discussion of our risk factors, refer to "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
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 authorization 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 the first quarter of 2024, we repurchased 36,744 shares of common stock for $4.6 million under the share repurchase program compared to no share repurchases completed during the first quarter of 2023. As of March 31, 2024, $82.5 million remained available under the repurchase authorization.
The following is a summary of common stock repurchases completed by month during the first quarter of 2024:
| Issuer Purchases of Equity Securities | ||||||||||||||||||||||||||||||||||||||
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | ||||||||||||||||||||||||||||||||||
| January 1, 2024 - January 31, 2024 | 9,613 | $ | 124.21 | 9,613 | $ | 85.9 | ||||||||||||||||||||||||||||||||
| February 1, 2024 - February 29, 2024 | 27,131 | $ | 125.46 | 27,131 | $ | 82.5 | ||||||||||||||||||||||||||||||||
| Total | 36,744 | $ | 125.13 | 36,744 | ||||||||||||||||||||||||||||||||||
Item 5. Other Information
Insider Trading Plans
None of the Company's directors or officers adopted terminated
41
Item 6. Exhibits
Exhibit Number | Exhibit Description | |||||||
Filed with this Report: | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101 | The following materials from GATX Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, are formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023, (ii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023, (iii) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023, (iv) Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2024 and 2023, and (v) Notes to Condensed Consolidated Financial Statements. | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |||||||
| Incorporated by Reference: | ||||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
_______
(*) Compensatory Plans or Arrangements.
Certain instruments evidencing long-term indebtedness of GATX Corporation are not being filed as exhibits to this Report because the total amount of securities authorized under any such instrument does not exceed 10% of GATX Corporation's total assets. GATX Corporation will furnish copies of any such instruments upon request of the Securities and Exchange Commission.
42
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GATX CORPORATION (Registrant) | ||
| /s/ Thomas A. Ellman | ||
| Thomas A. Ellman | ||
| Executive Vice President and Chief Financial Officer | ||
| (Duly Authorized Officer) | ||
Date: April 26, 2024
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1 GATX CORPORATION 2012 INCENTIVE AWARD PLAN PERFORMANCE SHARE AGREEMENT FOR EXECUTIVE OFFICERS GATX Corporation (the "Company") hereby grants on the Grant Date to the Participant as an incentive to advance the interests of the Company the number of Performance Shares approved by the Administrator, subject to Section 3.1 and Article 5 of the GATX Corporation Amended and Restated 2012 Incentive Award Plan (the “Plan”) and as set forth on the Shareworks website (https://www.shareworks.com) or any successor administrator the Administrator may designate from time to time to administer the Plan and this Agreement (the “Award”). Such grant is expressly subject to the terms and conditions of this Performance Share Agreement (the “Agreement”) as hereinafter set forth and further subject to the terms and conditions of the Plan, both of which are incorporated herein by reference. 1. Defined Terms. Capitalized terms used in this Agreement are defined in paragraph 14 or elsewhere in this Agreement. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Plan. 2. Award. Each Performance Share entitles the Participant to receive one share of Common Stock of the Company (each a “Share”) subject to the terms and conditions of this Agreement. This Award is granted in respect of the performance period beginning on January 1, 202[X] through and including December 31, 202[X] (the “Performance Period”). 3. Voting Rights and Dividends. Notwithstanding anything to the contrary, the Participant shall not have any rights as a shareholder of the Company, including the right to vote, until the Participant actually receives Shares in accordance with paragraph 4 of this Agreement. An account shall be established for the Participant, to which shall be credited dividend equivalents equal to the product of (a) the number of the Participant’s Performance Shares and (b) the dividend declared on a single share of Common Stock. To the extent the Participant becomes vested in Performance Shares, the Participant shall be entitled to a distribution of the dividend equivalents credited to his or her account if and when Shares are issued with respect to Performance Shares to which the Participant becomes entitled pursuant to paragraph 4 of this Agreement. All dividend equivalents paid will be considered ordinary income and will be subject to supplemental withholding rates for income tax purposes including payroll taxes, applicable to such supplemental income. 4. Vesting, Transfer and Forfeiture. (a) After the end of the Performance Period, the Committee shall determine the number of the Participant's Performance Shares that have been earned for the Performance Period in accordance with the schedule set forth on Exhibit
2 1, weighted by the percentages set forth in the column captioned “Weight” on Exhibit 2 and calculated in the manner set forth on Exhibit 2 (provided that the determination under this subparagraph 4(a) shall be subject to modification as provided in paragraph 8 hereof). The date of the Committee’s determination being the “Determination Date.” (b) Notwithstanding anything in this Agreement to the contrary that requires delivery and payment of Shares, the Participant may elect, in his or her sole discretion in lieu of Shares, to receive from the Company cash equal to the Fair Market Value of the Shares (as of the Determination Date) that otherwise would be delivered and payable under the terms of this Agreement, provided that the following conditions are met: (i) (A) the Participant is within five years of Normal Retirement Age (age 65) under the GATX Non-Contributory Pension Plan for Salaried Employees as of the last day of the Performance Period; or (B) the Participant satisfies at least 150% of his or her ownership requirement under the Company’s stock retention policy as of the last day of the Performance Period; and (ii) such election is submitted in writing on such form as the Company may specify (the “Cash Election”). The Participant may submit a Cash Election only during any period in which the Participant is allowed to trade in the Company’s Shares under the Company’s insider trading policy, but no later than the Determination Date for the Performance Period. If any of the foregoing conditions are not met, then the election will be void and the Participant shall receive payment under this Agreement in the form of Shares. Otherwise, an election to receive cash in lieu of Shares may not be revoked or changed once made. (c) As soon as practicable after the Determination Date, but not later than March 15 of the year following the end of the Performance Period, a number of Shares equal to the number of Performance Shares that vested pursuant to paragraph 4(a) shall be transferred to the Participant. (d) Except as provided in subparagraph 4(e) below, if the Participant's Date of Termination occurs prior to the end of the Performance Period, the Participant shall forfeit all Performance Shares and rights under this Agreement. (e) Notwithstanding subparagraph 4(d) above, the Participant shall become vested in a number of earned Performance Shares hereunder, and shall become owner of an equal number of Shares in respect thereof, free and clear of all restrictions otherwise imposed by this Agreement, as follows: (i) If the Participant’s employment is involuntarily terminated by the Employer other than for Cause, not less than eighteen (18) months following the beginning of the Performance Period but on or prior to the end of the Performance Period, the Participant will be entitled to
3 a pro rata portion of his or her earned Performance Shares based on the length of his or her employment during the Performance Period. The pro rata portion of the Performance Shares shall equal the product of: (A) the number of Performance Shares to which the Participant would otherwise be entitled as of the Determination Date in accordance with the foregoing provisions of this paragraph 4 had his or her employment not been terminated; and (B) a fraction (not greater than one), the numerator of which is the number of days the Participant was employed by the Company or its Subsidiaries during the period beginning on the date of commencement of the Performance Period and ending on the Date of Termination, and the denominator of which is the number of days in the Performance Period. The Shares to which the Participant is entitled pursuant to this subparagraph 4(e)(i) shall be transferred to the Participant in the year following the end of the Performance Period as soon as practical following the Determination Date, but not later than March 15 of the year following the end of the Performance Period. (ii) If the Participant's Date of Termination occurs by reason of the Participant's death, Retirement or Disability prior to the end of the Performance Period, the Participant will be entitled to receive a pro rata portion of his or her earned Performance Shares based on the length of his or her employment during the Performance Period. The pro rata portion of the Performance Shares shall equal the product of: (A) the number of Performance Shares to which the Participant would otherwise be entitled as of the Determination Date in accordance with the foregoing provisions of this paragraph 4 if no Date of Termination had occurred; and (B) a fraction (not greater than one), the numerator of which is the number of days during the period beginning on the date of commencement of the Performance Period and ending on the date of the Participant’s death, Retirement or Disability, and the denominator of which is the number of days in the Performance Period. Notwithstanding the foregoing, if the Participant’s Date of Termination occurs by reason of the Participant’s death, Retirement or Disability, the Committee may, in its sole discretion, increase the
4 number of Performance Shares to which the Participant is entitled, but in no event will the Participant be entitled to a distribution that is greater than what would have been distributable if no Date of Termination had occurred. The Shares to which the Participant is entitled pursuant to this subparagraph 4(e)(ii) shall be transferred to the Participant in the year following the end of the Performance Period as soon as practical following the Determination Date, but not later than March 15 of the year following the end of the Performance Period. (iii) Subject to the provisions of Section 14.2 of the Plan (relating to the adjustment of Shares), if a Change in Control occurs prior to a Participant's Date of Termination and before the end of the Performance Period and, within two (2) years after the occurrence of the Change in Control, the Participant's Date of Termination occurs by reason of discharge by the Participant's employer without Cause or the Participant resigns from employment with the employer for Good Reason, the Participant shall become vested in all Performance Shares granted under this Agreement prior to the Change in Control that are held by the Participant as of the Date of Termination, in accordance with subparagraphs 4(e)(iv) or 4(e)(v), as applicable. (iv) With respect to any Performance Shares that become vested in connection with a Change in Control described in Subsection 2.7(a), (b), (c) or (d) of the Plan, the number of Shares to which the Participant is entitled upon the vesting of his or her Performance Shares shall be calculated as if the Company had achieved 100% performance against its Performance Goals, and shall be transferred to the Participant as soon as practicable following the Date of Termination, but not later than March 15 of the year following year in which the Date of Termination occurs. Following a distribution in accordance with this subparagraph 4(e)(iv), the Participant shall have no further rights under this Agreement. (v) With respect to any Performance Shares that become vested in connection with a Change in Control described in Subsection 2.7(e) of the Plan, with respect to a Participant as described therein (relating to certain transactions involving a Subsidiary or Business Segment), as soon as practicable following the Date of Termination, the Participant shall receive a distribution of the following number of Shares as soon as practicable following the Date of Termination, but not later than March 15 of the year following year in which the Date of Termination occurs, determined on the assumption that the Company achieved 100% performance against its Performance Goals as follows:
5 (A) If the Date of Termination occurs during the first year of the Performance Period, the Participant shall be entitled to receive Shares equal in number to one-third (1/3) of his or her Performance Shares. (B) If the Date of Termination occurs during the second year of the Performance Period, the Participant shall be entitled to receive Shares equal in number to two-thirds (2/3) of his or her Performance Shares. (C) If a Date of Termination occurs during the third year of the Performance Period, such Participant shall be entitled to receive Shares equal in number to the total of all of his or her Performance Shares. Following a distribution in accordance with this subparagraph 4(d)(v), the Participant shall have no further rights under this Agreement. (vi) For purposes of subparagraphs 4(e)(iii) and 4(e)(v) hereof, if, as a result of a Change in Control described in Subsection 2.7(e) of the Plan, the Participant’s Employer ceases to be a Subsidiary or the Participant’s Employer is or becomes an entity that is separate from GATX, and the Participant is not, immediately following the Change in Control, employed by the Company or an entity that is then a Subsidiary, then the occurrence of the Change in Control shall be treated as the Participant’s Date of Termination caused by the Participant being discharged by the employer without Cause. (f) Except pursuant to a domestic relations order, the Performance Shares may not be sold, assigned, transferred, pledged or otherwise encumbered until Shares have been distributed to the Participant free and clear of all restrictions. 5. Withholding. The granting, vesting and settlement of Performance Shares under this Agreement are subject to withholding of all applicable taxes, employee social security or other social insurance contributions, solidarity charges and any other legally required withholdings on income. Subject to such rules and limitations as may be established by the Committee from time to time, and Section 12.2 of the Plan, the Participant may satisfy his or her withholding obligations through (i) payment of cash to the Company equal to the amount of taxes required to be withheld, (ii) contemporaneously withholding from other sources of income otherwise payable to the Participant by the Company or any Subsidiary, or (iii) the surrender of Shares which the Participant already owns, or to which the Participant is otherwise entitled under the Plan or this Agreement; provided, however, that, except as otherwise provided by the Committee, Shares otherwise payable under
6 this Agreement may not be used to satisfy more than the Employer's minimum legally required withholding obligation (based on minimum statutory rates that are applicable to such income). In the event that the withholding obligation arises during a period in which the Participant is prohibited from trading in Common Stock pursuant to the Company’s insider trading policy, or otherwise by applicable law, then unless otherwise elected by the Participant during a period when he or she was not so restricted from trading, the Employer shall automatically satisfy the Participant’s withholding obligation by withholding from Shares otherwise deliverable under this Agreement. The Participant understands that he/she may suffer adverse tax consequences as a result of the grant, vesting or settlement of the Performance Shares. GATX including the Employer does not make any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or settlement of the Performance Shares. GATX does not commit and is under no obligation to structure the Plan to reduce or eliminate Participant’s tax liability. The Participant represents that he/she has had the opportunity to consult with any tax consultants he/she deems advisable in connection with the Plan and that he/she is not relying on the Company or the Employer for any tax advice. The Participant is relying solely on such advisors and not on any statements or representations of the Company, the Employer or any of their agents. 6. Heirs and Successors. This Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, including any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. If any rights of the Participant or benefits distributable to the Participant under this Agreement have not been exercised or distributed, respectively, at the time of the Participant's death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be distributed to the Designated Beneficiary, in accordance with the provisions of this Agreement and the Plan. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercised by or distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the Designated Beneficiary's exercise of all rights under this Agreement or before the complete distribution of benefits to the Designated Beneficiary under this Agreement, then any rights that would have been exercisable by the Designated Beneficiary shall be exercised by the legal representative of the estate of the Designated Beneficiary, and any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary. 7. Administration. The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with
7 respect to the Plan. Any interpretation of this Agreement by the Committee and any decision made by it with respect to this Agreement shall be final and binding on all persons. 8. Modification of Performance Goals. Pursuant to Subsection 2.33(b) of the Plan, in determining the extent to which the Performance Goals have been achieved, the Committee may, in its sole discretion, include or exclude items or events that impact the final results, positively or negatively, as it deems appropriate. In the event that it is later determined an award was erroneously calculated and paid, then the Company may, in its sole discretion, make appropriate adjustments, including the right to recover any overpayment through offsets of future compensation (to the extent legally permissible) or to make additional payments for any award that was underpaid. Nothing herein shall require the Company to correct any under or overpayment. In case of an overpayment, employees agree to execute the appropriate forms upon request authorizing the Company to deduct the amount of such overpayment from payroll, in accordance with applicable wage deduction laws, or to promptly repay such overpayment in full upon request. 9. Plan Governs. Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the Director, Compensation of the Company. This Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Administrator from time to time pursuant to the Plan. 10. Not An Employment Contract. The grant of Performance Shares hereunder will not confer on the Participant any right with respect to continuance of employment or other service with GATX or the Employer, nor will it interfere in any way with any right GATX or the Employer would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time. The grant of the Performance Shares does not create or form any part of a contract for employment with the Employer or any GATX entity. 11. Notices. Any written notices provided for in this Agreement or the Plan shall be provided in accordance with subparagraph 11(a) or 11(b), as applicable and, if provided to the Company, shall be addressed as follows: GATX Corporation 233 South Wacker Drive Chicago, IL 60606-7147 U.S.A. (a) Any notice required by the Participant pursuant to the definition of Good Reason, as defined below, shall be in writing given by email, hand delivery or by registered or certified mail, return receipt requested, postage prepaid,
8 addressed to the Executive Vice President and Chief Human Resources Officer and shall be effective when actually received. (b) All other notices shall be in writing and shall be deemed sufficiently given if emailed, hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Any such notice sent by mail or email shall be deemed received three business days after mailing or emailing, but in no event later than the date of actual receipt and shall be directed, if to the Participant, at the Participant's address indicated by the Company's records, or if to the Company, to the attention of the Director, Compensation and Benefits. 12. Amendment. This Agreement may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the parties. 13. No Right to Future Grants; No right to Compensation. The Plan is discretionary in nature and that, subject to the terms of the Plan, the Company can amend, cancel or terminate the Plan at any time. The grant of the Performance Shares under the Plan is voluntary and occasional and does not give Participant any contractual or other right to receive Performance Shares or benefits in lieu of Performance Shares in the future, even if a Participant has received Performance Shares repeatedly in the past. All determinations with respect to any future awards, including, but not limited to, the times when awards under the Plan shall be granted and the terms thereof, including the time or times when any Performance Shares may vest, will be at the sole discretion of the Administrator. Participation in the Plan is voluntary. The value of the Performance Shares is an extraordinary item of compensation that is outside of the scope of any employment contract or directorship, or consultancy relationship and are not part of normal or expected compensation or salary for any purpose, including, without limitation, calculating severance, resignation, redundancy, end of service payments, bonuses, long- service awards, pension or retirement benefits, or similar payments. No claim or entitlement to compensation or damages arises from the expiration, termination or forfeiture of the Performance Shares or any portion thereof. 14. Definitions. For purposes of this Agreement, the terms used in this Agreement shall be subject to the following: “3-Year Average Return on Equity” means the sum of net income divided by average equity for each year in the Performance Period divided by three (3). Accumulated other comprehensive income is excluded from equity. “3-Year Cumulative Investment Volume” means the sum of consolidated cumulative GAAP basis portfolio investments and capital additions as reported on the Company’s audited balance sheet for each year in the Performance Period. Purchases of leased in assets are excluded.
9 “Cause” means (a) the willful and continued failure to perform substantially Participant’s duties with GATX (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to Participant by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that Participant has not substantially performed Participant’s duties , or (b) the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to GATX. For purposes of this provision, no act or failure to act, on the part of the Participant, shall be considered “willful” unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief, that the Participant’s action or omission was in the best interests of GATX. “Change in Control” shall have the meaning ascribed to it in Section 2.7 of the Plan; provided, however, to the extent required to avoid the imposition of additional taxes under Section 409A of the Code, such Change in Control must also constitute a “change in control event” within the meaning of Treasury Regulation Section 1.409A-3(i)(5). “Date of Termination” means the date on which the Participant incurs a Termination of Service. “Designated Beneficiary” means the beneficiary or beneficiaries designated by the Participant in a writing filed with the Administrator in such form and at such time as the Administrator shall require. “Disability” means, except as otherwise provided by the Administrator, any disability that entitles the Participant to disability income benefits under the GATX Long Term Disability Income Plan as in effect from time to time. “Employer” means the GATX entity which employs the Participant. “GATX” means the Company collectively with each Subsidiary thereof. “Good Reason” means the occurrence of one or more of the following conditions without the consent of the Participant: (a) a material diminution in the Participant's base compensation, compared with the Participant's base compensation in effect immediately prior to the consummation of a Change in Control; (b) a material diminution in the Participant's authority, duties, or responsibilities, compared with the authority, duties, and responsibilities of the Participant immediately prior to the consummation of a Change in Control; (c) the Participant is required to report to a supervisor with materially less authority, duties, or responsibilities than the authority, duties, and
10 responsibilities of the supervisor who had the greatest such authority, duties, and responsibilities at the time the Participant was required to report to such supervisor during the 120-day period immediately preceding the consummation of a Change in Control; (d) a material diminution in the budget over which the Participant retains authority, compared with the most significant budget, if any, over which the Participant had authority at any time during the 120-day period immediately preceding the consummation of a Change in Control; (e) a material change in the geographic location at which the Participant must perform services; or (f) any other action or inaction by GATX that constitutes a material breach of any individual severance agreement between GATX and the Participant or the Severance Plan, in each case to the extent in effect when a Change in Control occurs. If (I) the Participant provides written notice to GATX of the occurrence of Good Reason within a reasonable time (not more than 90 days) after the Participant has knowledge of the circumstances constituting Good Reason, which notice specifically identifies the circumstances which the Participant believes constitute Good Reason; (II) GATX fails to notify the Participant of GATX’s intended method of correction within a reasonable period of time (not less than 30 days) after GATX receives the notice, or GATX fails to correct the circumstances within a reasonable period of time after such notice (except that no such opportunity to correct shall be applicable if the circumstances constituting Good Reason are those described in paragraph (e) above, relating to relocation); and (III) the Participant resigns within a reasonable time after receiving GATX’s response, if such notice does not indicate an intention to correct such circumstances, or within a reasonable time after GATX fails to correct such circumstances (provided that in no event may such termination occur more than two (2) years after the initial existence of the condition constituting Good Reason), then the Participant shall be considered to have terminated for Good Reason. “Grant Date” means the date the grant was approved by the Committee. “Performance Goals” means 3-Year Average Return on Equity and 3-Year Cumulative Investment Volume established by the Committee for the Performance Period as set forth in Exhibit 1. “Retirement” means the Participant’s voluntary retirement from the Employer on or after both attaining at least age 55 and completing at least 15 years of service as of the Date of Termination.
11 Exhibit 1 Performance Goals, Weights and % of Target Earned 202[X]-202[X] Performance Period 3-Year Average ROE (1) (50% weight) % of Target Grant Earned Interpolated for actual performance between levels shown (1) 3-Year Average Return on Equity is defined as the sum of net income divided by average equity for each year in the Performance Period divided by three (3); excludes accumulated other comprehensive income from equity. 3-Year Cumulative Investment Volume (2) (50% weight) % of Target Grant Earned Interpolated for actual performance between levels shown (2) 3-Year Cumulative Investment Volume is defined as the sum of consolidated cumulative GAAP basis portfolio investments and capital additions as externally reported for each year in the Performance Period; excludes purchases of leased in assets. In determining the extent to which the Performance Goals have been achieved, the Committee, in its sole discretion, may include or exclude items or events that impact the final results, positively or negatively.
Exhibit 2 12 Sample Calculation of Performance Shares Earned Number of Performance Shares Granted: 1,000 Performance Goal Weight Target Goal Assumed Actual Payout Percentage Weighted Payout Percentage 3-Year Average ROE 3-Year Cumulative Investment Volume 50% 50% Total Weighted Payout Performance Shares Earned Shares Granted Weighted Payout Total Performance Shares Earned 1,000 x
GATX CORPORATION 2012 INCENTIVE AWARD PLAN OPTION AGREEMENT GATX Corporation (the "Company") hereby grants on the Grant Date to the Participant as an incentive to advance the interests of the Company an option (the "Option") to purchase the number of Shares set forth on the Shareworks website (https://www.shareworks.com) or any successor administrator the Committee may designate from time to time to administer the Plan and this Agreement (“Shareworks”) at the exercise price per Share set forth on the Shareworks website (the “Exercise Price”) pursuant to the GATX Corporation Amended and Restated 2012 Incentive Award Plan (the “Plan”). Such grant is expressly subject to the terms and conditions of this Option Agreement (the “Agreement”) as hereinafter set forth and further subject to the terms and conditions of the Plan, both of which are incorporated herein by reference. 1. Defined Terms. Capitalized terms used in this Agreement are defined in paragraph 14 or elsewhere herein. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Plan. 2. Vesting and Exercise Schedule. Subject to the terms and conditions of this Agreement, the Option shall vest and become exercisable in installments according to the following schedule, provided the Participant has not had a Termination of Service prior thereto: INSTALLMENT VESTING DATE 33.33% of the Option One-year anniversary of the Grant Date 33.33% of the Option Two-year anniversary of the Grant Date 33.34% of the Option Three-year anniversary of the Grant Date 3. Accelerated Vesting. Notwithstanding paragraph 2 of this Agreement, the Participant shall vest in the Option granted hereunder and such Option shall be exercisable as follows: (a) The Option shall become fully vested on the Date of Termination if a Participant’s termination occurs by reason of the Participant's death or Disability. (b) If a Participant’s termination occurs by reason of Retirement, then the Participant will vest in an additional number of Shares subject to the Option such that the total number of Shares subject to the Option in which the Participant is vested shall equal the product of: (i) the number of Shares subject to the Option granted to the Participant hereunder; and (ii) a fraction (not greater than one), the numerator of which shall be the number of days the Participant is employed by the Employer during the
period beginning on the Grant Date and ending on the Date of Termination and the denominator of which shall be the number of days from the Grant Date through the third anniversary thereof. (c) Only Options that are vested and exercisable on or immediately prior to the Participant’s Date of Termination may be exercised on or after the Participant’s Date of Termination. However, if the Participant is terminated for Cause, all unexercised Options (whether or not previously vested) will be cancelled as of the date immediately prior to the Participant’s Date of Termination. (d) Subject to the provisions of Section 14.2 of the Plan (relating to the adjustment of shares), if a Change in Control occurs prior to a Participant's Date of Termination, and within two years after the occurrence of the Change in Control the Participant's Date of Termination occurs by reason of discharge by the employer without Cause or the Participant resigns from employment with the employer for Good Reason, the Participant shall, except as provided in subparagraph 3(e) below, become vested in all unvested, outstanding Options that were granted prior to the Change in Control and that are held by the Participant as of the Date of Termination. (e) If a Date of Termination occurs as described in subparagraph 3(d) above in connection with a Change in Control described in Subsection 2.7(e) of the Plan with respect to a Participant as described therein (relating to certain transactions involving a Subsidiary or Business Segment), (A) the Options, if any, scheduled to become vested and exercisable during the calendar year in which such Date of Termination occurs shall vest and become exercisable in full beginning on the date on which the Date of Termination occurs and (B) all vested and exercisable Options will remain exercisable until the earlier of the Expiration Date or the last business day of the calendar year following the calendar year in which the Change in Control occurs. (f) For purposes of this paragraph 3, if, as a result of a Change in Control described in Subsection 2.7(e) of the Plan, the Participant’s employer ceases to be a Subsidiary or the Participant’s employer is or becomes an entity that is separate from the Company, and the Participant is not, immediately following the Change in Control, employed by the Company or an entity that is then a Subsidiary, then the occurrence of the Change in Control shall be treated as a Termination of Service without Cause for such Participant. 4. Expiration. The Option shall not be exercisable after the Company's close of business on the last business day that occurs immediately prior to the Expiration Date. The "Expiration Date" shall be the earliest to occur of: (a) the seven-year anniversary of the Grant Date;
(b) if the Date of Termination occurs by reason of death or Disability, the one- year anniversary of such Date of Termination; (c) if the Date of Termination occurs for Cause, the date immediately preceding Date of Termination; (d) if the Date of Termination occurs by reason of Retirement, the five-year anniversary of such Date of Termination; and (e) if the Date of Termination occurs for any reason other than those listed in subparagraph (c), (d), or (e) of this paragraph 3, the three-month anniversary of such Date of Termination. 5. Method of Option Exercise. The Option subject to this grant may be exercised, once vested, in whole or in part according to such procedures as the Administrator may establish in its sole discretion from time to time. However, the Option may not be exercised with respect to fractional Shares. The Option covered by this Agreement shall be settled in Shares upon its exercise. The Option will be deemed exercised upon the Participant’s payment of the Exercise Price per Share and any applicable tax withholding to the Company. Payment of the Exercise Price may be made (a) in cash or check, (b) Shares issuable pursuant to the exercise of the Option or Shares held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences, in each case, having a Fair Market Value on the Exercise Date equal to the aggregate payments required, (c) delivery of a written or electronic notice that the Participant has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided that payment of such proceeds is then made to the Company upon settlement of such sale, or (d) such other form of legal consideration acceptable to the Committee. 6. Dividend Equivalents. The Participant shall be entitled to accrue dividend equivalents beginning on the Grant Date and ending upon the earlier to occur of (i) the Exercise Date of the Option and (ii) the Expiration Date. An account will be established for the Participant that will accrue dividend equivalents with respect to their Options that have not vested. The Participant’s account shall be credited with dividend equivalents equal to the product of (a) the number of Shares underlying the Option granted to the Participant and that has not vested, subject to any adjustment made by the Committee as referred to in Section 14.2 of the Plan, and (b) the dividend declared on a single Share with respect to the immediately preceding dividend record date. So long as the Option has not been cancelled, accrued dividends will be paid as soon as practical after the vesting date of the Option to which such dividend equivalents related as reflected in paragraph 2 of this Agreement. Dividend equivalents with respect to vested, unexercised Options will be calculated as described above, and will be paid within 30 days of each quarterly dividend payment date. Dividend equivalents will be prorated through
the Expiration Date for the quarter in which the Expiration Date occurs on vested and unexercised Options. 7. Withholding. All deliveries and distributions under this Agreement are subject to withholding of all applicable taxes, employee social security or other social insurance contributions, solidarity charges and any other legally required withholdings on income. At the election of the Participant, and subject to such rules and limitations as may be established by the Administrator from time to time, such withholding obligations may be satisfied through the surrender of Shares which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that, except as otherwise provided by the Committee, such Shares acquired upon exercise of the Option may be used to satisfy not more than the Employer’s minimum legally required withholding obligation (based on minimum statutory rates that are applicable to such income). In the event that the withholding obligation arises during a period in which the Participant is prohibited from trading in the Shares pursuant to the Company’s insider trading policy, or otherwise by applicable law, then unless otherwise elected by the Participant during a period when he/she was not so restricted from trading, the Employer shall automatically satisfy the Participant’s withholding obligation by withholding from Shares otherwise deliverable under this Agreement. The Participant understands that he/she may suffer adverse tax consequences as a result of the Option. GATX including the Employer does not make any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or exercise of the Option. GATX does not commit and is under no obligation to structure the Plan to reduce or eliminate Participant’s tax liability. The Participant represents that he/she has had the opportunity to consult with any tax consultants he/she deems advisable in connection with the Plan and that he/she is not relying on the Company or the Employer for any tax advice. The Participant is relying solely on such advisors and not on any statements or representations of the Company, the Employer or any of their agents. 8. Transferability. Except as provided in a domestic relations order, the Option is not transferable other than as designated by the Participant by will or by the laws of descent and distribution, and during the Participant's life, may be exercised only by the Participant or, in the case of his or her incapacity, by his or her legal representative. 9. Heirs and Successors. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company's assets and business. If any rights exercisable by the Participant or benefits deliverable to the Participant under this Agreement have not been exercised or delivered, respectively, at the time of the Participant's death, such rights shall be exercisable by the Designated Beneficiary, and such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of this Agreement and the Plan. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the
Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be exercised by or distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the Designated Beneficiary's exercise of all rights under this Agreement or before the complete distribution of benefits to the Designated Beneficiary under this Agreement, then any rights that would have been exercisable by the Designated Beneficiary shall be exercised by the legal representative of the estate of the Designated Beneficiary, and any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary. 10. Plan Governs. Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the Director, Compensation of the Company. This Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Administrator from time to time pursuant to the Plan. 11. Not an Employment Contract. The grant of the Option will not confer on the Participant any right with respect to continuance of employment or other service with GATX or the Employer, nor will the Option interfere in any way with any right GATX or the Employer would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time. The grant of the Option does not create or form any part of a contract for employment with the Employer or any GATX entity. 12. Notices. Any written notices provided for in this Agreement or the Plan shall be provided in accordance with subparagraph 12(a) or 12(b), as applicable and, if provided to the Company, shall be addressed as follows: GATX Corporation 233 South Wacker Drive Chicago, IL 60606-7147 U.S.A. (a) Any notice required by the Participant pursuant to the definition of Good Reason, as defined below, shall be in writing given by email, hand delivery or by registered or certified mail, return receipt requested, postage prepaid, addressed to the Executive Vice President and Chief Human Resources Officer and shall be effective when actually received. (b) All other notices shall be in writing and shall be deemed sufficiently given if emailed, hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Any such notice sent by mail or email shall be deemed received three business days after mailing or emailing, but in no event later
than the date of actual receipt and shall be directed, if to the Participant, at the Participant's address indicated by the Company's records, or if to the Company, to the attention of the Director, Compensation and Benefits. 13. No Rights as Shareholder. The Participant shall not have any rights of a shareholder with respect to the Shares subject to the granted Option, unless and until the Option has been exercised and a stock certificate has been duly issued as provided herein. 14. No Right to Future Grants; No right to Compensation. The Plan is discretionary in nature and that, subject to the terms of the Plan, the Company can amend, cancel or terminate the Plan at any time. The grant of the Option under the Plan is voluntary and occasional and does not give Participant any contractual or other right to receive Options or benefits in lieu of Options in the future, even if a Participant has received Options repeatedly in the past. All determinations with respect to any future awards, including, but not limited to, the times when awards under the Plan shall be granted and the terms thereof, including the time or times when any portion of the Option may vest, will be at the sole discretion of the Administrator. Participation in the Plan is voluntary. The value of the Option is an extraordinary item of compensation that is outside of the scope of any employment contract or directorship, or consultancy relationship and are not part of normal or expected compensation or salary for any purpose, including, without limitation, calculating severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits, or similar payments. No claim or entitlement to compensation or damages arises from the expiration, termination or forfeiture of the Option or any portion thereof. 15. Definitions. For purposes of this Agreement, the terms used in this Agreement shall be subject to the following: “Cause” means (i) the willful and continued failure of the Participant to perform the Participant's duties for GATX (other than any such failure resulting from incapacity due to physical or mental illness), or (ii) the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to GATX. For purposes of this provision, no act or failure to act, on the part of the Participant, shall be considered "willful" unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief, that the Participant's action or omission was in the best interests of GATX. “Date of Termination” means the date on which the Participant incurs a Termination of Service. “Designated Beneficiary” means the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require.
“Disability” means, except as otherwise provided by the Committee, that the Participant is considered to have a "Disability" for such period of time that the Participant is considered to be "disabled" (as such term is defined in the Company's long term disability plan). “Employer” means the GATX entity which employs the Participant. “Exercise Date” means the date the Option is exercised by the Participant by logging into Shareworks (https://www.shareworks.com) or contacting a Shareworks customer service representative before 3:00 p.m. eastern time and indicating the number of underlying Shares with respect to which the Option is to be so exercised. “GATX” means the Company collectively with each Subsidiary thereof. “Good Reason” means the occurrence of one or more of the following conditions without the consent of the Participant: (i) a material diminution in the Participant's base compensation, compared with the Participant's base compensation in effect immediately prior to the consummation of a Change in Control; (ii) a material diminution in the Participant's authority, duties, or responsibilities, compared with the authority, duties, and responsibilities of the Participant immediately prior to the consummation of a Change in Control; or (iii) a material change in the geographic location at which the Participant must perform services. The Participant must provide written notice to the Company of the occurrence of Good Reason within 90 days after the event constituting Good Reason, which notice specifically identifies the circumstances which the Participant believes constitute Good Reason. The Company will have 30 days after it receives the notice to correct the circumstances or give notice to the Participant that it does not intend to correct. The Participant may resign within a reasonable time after receiving the Company's response or after the Company fails to correct such circumstances (provided that in no event may such termination occur more than one year after the initial existence of the condition constituting Good Reason). “Grant Date” means the later of either the date the grant was approved by the Committee or the last trading day of the month following the month in which the Participant was hired. “Retirement” means the Participant’s voluntary retirement from the Employer on or after both attaining at least age 55 and completing at least 15 years of service as of the Date of Termination.
Page 1 GATX CORPORATION CORPORATE OFFICERS’ INCENTIVE PLAN (COIP) Effective: January 1, 2024 1. OBJECTIVE The Corporate Officers’ Incentive Plan (the “COIP” or “Plan”) has been established for selected employees of GATX Corporation (the “Company” or “GATX”) to: Motivate the collective achievement of profitable company performance. 2. PLAN YEAR Each plan year will include a performance period based on a calendar year (from January 1 through December 31), as well as the award determination, approval and award payment. 3. ELIGIBILITY TO PARTICIPATE Eligibility to participate in the plan will be determined at the beginning of the Plan Year by Plan Administrators. Participants in the COIP are all permanent exempt salaried employees of GATX who: Receive notification of participation in the COIP, including his or her Target Incentive Percentage and a copy of this Plan; Are corporate officers; Do not participate in any other GATX annual incentive plan, except as specified under the promotion or transfer provisions listed below. 4. PLAN DESIGN Overall funding of the Plan will be based upon GATX performance against its financial goal. The Actual Incentive Payout will be based upon the extent to which GATX’s Net Income Goal, as established at the beginning of the year, is achieved according to a payout scale approved by the Compensation Committee of the Board of Directors of the Company (the “Committee”). Participants will earn the Actual Incentive Payout, assuming acceptable performance. In the event of unacceptable performance, the participant’s Actual Incentive Payout earned may be reduced by up to 100% as approved by the Plan Administrators. .
Page 2 Definitions: For purposes of the Plan, the terms set forth shall have the following meanings: (a) “Eligible Base Salary” means the total salary paid to a Participant by the Company during the Plan Year (including salary earned under the Maternity and Paternity Leave Policy) prior to any reduction for contributions to or deferrals of compensation under company- sponsored plans. Eligible Base Salary excludes incentive compensation, commissions, lump sum payments and short-term disability payments in excess of eight weeks. (b) “Target Incentive” means the percentage of Eligible Base Salary payable to a Participant if 100% of the Net Income Goal is attained. (c) “Funding Multiplier” means the percentage of the Target Incentive payable for specified levels of actual achievement of the Net Income Goal according to a payout scale approved by the Committee. (d) “Net Income Goal” means the net income goal for GATX Corporation for a specific Plan Year as approved by the Committee. (e) “Actual Incentive Payout” means the amount payable to an eligible Participant calculated as a result of actual Company performance in accordance with the provisions of this Plan. 5. INCENTIVE PAYOUT DETERMINATION At the end of the performance period, the Actual Incentive Payout will be determined based upon achievement of the Net Income Goal according to a payout scale approved by the Committee. 6. PLAN ADMINISTRATION The Plan shall be administered by the Committee, provided that the Company's Chief Executive Officer shall administer the Plan with respect to all Participants (as defined below) who are not executive officers of the Company (for purposes of Section 16 of the Securities Exchange Act of 1934, as amended). The Chief Executive Officer may further delegate his or her responsibility under the Plan to the Company's Chief Human Resources Officer. The Committee or the Chief Executive Officer (or the Chief Human Resources Officer), as applicable, shall be the “Plan Administrators” for purposes of the Plan. The Plan Administrators shall have the discretion and authority to administer and interpret the Plan, including the authority to establish one or more bonus programs under the Plan from time to time containing such terms and conditions as the Plan
Page 3 Administrators may determine or deem appropriate in their discretion according to the following terms: a) New Hires. Employees hired after the start of the Plan Year and prior to November 1 may participate in the Plan on a prorated basis. b) Transfer or Promotion. If a Participant’s Target Incentive or Plan Participation changes during a Plan Year due to transfer or promotion, his or her Actual Incentive Payout will be prorated as appropriate and based upon the applicable Plan documents. c) Retirement, Death or Disability. To the extent approved by the Plan Administrators, a Participant who retires (as that term is defined in the GATX Pension Plan for Salaried Employees), dies, or becomes totally and permanently disabled during the Plan Year may be eligible to receive a prorated Actual Incentive Payout, assuming acceptable performance. Any such Actual Incentive Payout will be prorated through the date of retirement, death or disability and will be made at the same time as payments are made to other Participants. d) Right to Receive Payment. Participants only become eligible to receive Actual Incentive Payouts if they are employed at the time payments are scheduled to be made. All payments under the Plan will be made solely from the general assets of the Company. e) Timing of Payments. Payments will be made between February 15 and March 15 of the year following the performance period. f) No Employment Guarantee. Neither the establishment of the Plan nor the authorization to be a Participant in the Plan will be construed as giving the Participant the right to be retained in the service of the Company. g) Modification of Plan and Awards. GATX reserves the right to amend, modify, discontinue or adjust the Plan, performance measures, target awards, funding, formulas, participant eligibility, and any other Plan provision, in whole or part, including determination of awards, at its discretion. In the event that it is later determined an award was erroneously calculated and paid, then the Company may, in its sole discretion, make appropriate adjustments, including the right to recover any overpayment through offsets of future compensation (to the extent legally permissible) or to make additional payments for any award that was underpaid. Nothing herein shall require the Company to correct any under or overpayment. In case of an overpayment, employees
Page 4 agree to execute the appropriate forms upon request authorizing the Company to deduct the amount of such overpayment from payroll, in accordance with applicable wage deduction laws, or to promptly repay such overpayment in full upon request. h) No Guarantee of Award. Eligibility to participate in the Plan does not guarantee incentive payments. i) Award Payments. Final determination of all awards will be made by the Plan Administrators. The Actual Incentive Payout will be paid according to GATX’s standard payroll processes. Awards granted under the Plan are intended to constitute cash-based Performance Awards, as defined in and for purposes of the GATX Corporation Amended and Restated 2012 Incentive Award Plan.
Exhibit 31.1
Certification
I, Robert C. Lyons, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of GATX Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| /s/ Robert C. Lyons | ||
| Robert C. Lyons | ||
| President and Chief Executive Officer | ||
April 26, 2024
Exhibit 31.2
Certification
I, Thomas A. Ellman, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of GATX Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| /s/ Thomas A. Ellman | ||
| Thomas A. Ellman | ||
| Executive Vice President and Chief Financial Officer | ||
April 26, 2024
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of GATX Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Robert C. Lyons | /s/ Thomas A. Ellman | |||||||
| Robert C. Lyons | Thomas A. Ellman | |||||||
| President and Chief Executive Officer | Executive Vice President and Chief Financial Officer | |||||||
April 26, 2024
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by GATX Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to GATX Corporation and will be retained by GATX Corporation and furnished to the Securities and Exchange Commission or its staff upon request.