GATX(US:GATX)2024-02-15 16:00Part I Business GATX is a global railcar and aircraft spare engine lessor with $11.3 billion in assets, operating across North America, Europe, and India - GATX is a leading global railcar lessor with fleets in North America, Europe, and India, also owning one of the largest aircraft spare engine lease portfolios through wholly-owned businesses and joint ventures15 Worldwide Rail Fleet as of December 31, 2023 | | Tank Railcars | Freight Railcars | Total Fleet | Managed Railcars | Total Railcars | Locomotives | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Rail North America | 62,227 | 48,251 | 110,478 | 288 | 110,766 | 523 | | Rail International | 23,878 | 14,143 | 38,021 | 7 | 38,028 | — | | Total | 86,105 | 62,394 | 148,499 | 295 | 148,794 | 523 | - The company reports through three primary business segments: Rail North America, Rail International, and Portfolio Management, with Trifleet in the Other segment15 - As of December 31, 2023, GATX had total assets of $11.3 billion, largely composed of railcars17 Rail North America This segment provides full-service railcar leases in North America, managing over 110,000 railcars with an average lease term of 38 months and extensive maintenance facilities - Rail North America serves approximately 840 customers, with the top ten accounting for about 23% of lease revenue in 202322 - The average remaining lease term for the North American fleet was approximately 38 months as of December 31, 202322 - A new long-term supply agreement with Trinity was established in 2022 for 15,000 new railcars through 2028, with options for an additional 500 cars annually24 Rail International This segment includes operations in Europe and India, managing over 37,800 railcars with average lease terms of 21 and 67 months respectively, and completed its exit from the Russian market in 2023 - GATX Rail Europe (GRE) serves approximately 260 customers, with the top ten accounting for 49% of total lease revenue in 202334 - Rail India's fleet consists of 8,805 railcars with an average remaining lease term of approximately 67 months as of year-end 202337 - GATX completed its exit from the Rail Russia business in the first quarter of 2023 due to the Russia/Ukraine conflict38 Portfolio Management This segment primarily manages aircraft spare engine leasing through RRPF joint ventures and wholly-owned GEL, owning 399 and 29 engines respectively, and completed the sale of its Specialized Gas Vessels in 2023 - The RRPF affiliates, a 50% joint venture with Rolls-Royce, owned 399 aircraft spare engines as of December 31, 202344 - GATX's wholly-owned entity, GEL, owned 29 aircraft spare engines as of December 31, 202345 - The company completed its exit from the marine asset business by selling the remaining three Specialized Gas Vessels in 202348 Human Capital and Sustainability GATX employed 2,020 people globally as of year-end 2023, emphasizing diversity, talent development, competitive compensation, employee safety, and Board-level oversight of ESG efforts - As of December 31, 2023, GATX employed 2,020 people globally, with approximately 36% being union workers57 - The company is committed to diversity and inclusion, implementing diverse candidate slates, annual pay equity analysis, and supporting employee resource groups5962 - The Governance Committee of the Board of Directors has primary oversight responsibility for the company's ESG efforts, and GATX publishes an annual SASB report65 Risk Factors GATX faces diverse risks including business and operational challenges, cybersecurity threats, legal and regulatory exposures, economic volatility, and factors related to its common stock and general business operations - Business risks include dependence on customer demand, competition from larger firms, and operational changes like 'precision scheduled railroading' (PSR) impacting railcar demand758182 - The company relies heavily on Rolls-Royce as a major customer and critical supplier for its aircraft spare engine leasing businesses, making it vulnerable to adverse factors affecting Rolls-Royce89 - Cybersecurity threats to the company's IT infrastructure pose a significant risk, potentially leading to business disruptions, data theft, and legal liabilities94 - Economic risks include adverse effects of geopolitical tensions, prolonged inflation, rising interest rates, and deterioration in global capital markets100103104107 - Six shareholders collectively control over 60% of the company's outstanding common stock, allowing significant influence on shareholder approval matters110 Unresolved Staff Comments The company reports no unresolved staff comments - None Cybersecurity GATX integrates cybersecurity into its ERM program with Board oversight, focusing on governance, technical safeguards, incident response, and employee education, with no identified material threats - The Board of Directors, through its Audit Committee, oversees the company's Enterprise Risk Management (ERM) program, including cybersecurity risk122 - The company's cybersecurity program is managed by a dedicated group led by the Global Head of IT Security, who has over 15 years of experience123 - GATX has not identified any risks from known cybersecurity threats or previous incidents reasonably likely to materially affect the company121 Properties GATX's properties include its Chicago headquarters, extensive rail maintenance facilities and offices across North America, Europe, and India, and additional office locations for Portfolio Management and Trifleet - GATX headquarters is located in Chicago, Illinois126 - Rail North America operates six major maintenance facilities in locations including Colton, CA; Hearne, TX; and Waycross, GA, supplemented by smaller facilities and mobile units30127 - Rail International operates a major maintenance facility in Ostróda, Poland, and has business offices across Europe and India128 Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 23 of the financial statements - Details concerning litigation and other contingencies are described in "Note 23. Legal Proceedings and Other Contingencies" in Part II, Item 8 of this Form 10-K129 Mine Safety Disclosures The company reports no mine safety disclosures - None Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities GATX common stock trades on NYSE and Chicago Stock Exchange, with the company repurchasing $2.6 million in 2023, and its five-year cumulative return outperforming the S&P MidCap 400 Index - In 2023, the company repurchased 24,520 shares for $2.6 million, with $87.1 million remaining available under the share repurchase authorization as of December 31, 2023134 Issuer Purchases of Equity Securities (Q4 2023) | 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) | | :--- | :--- | :--- | :--- | :--- | | Oct 1 - Oct 31, 2023 | 24,420 | $104.68 | 24,420 | $87.1 | | Nov 1 - Nov 30, 2023 | 100 | $109.03 | 100 | $87.1 | | Total | 24,520 | $104.70 | 24,520 | | Five-Year Cumulative Total Shareholder Return | | 12/31/18 | 12/31/19 | 12/31/20 | 12/31/21 | 12/31/22 | 12/31/23 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | GATX | $100.00 | $119.75 | $123.60 | $158.13 | $164.72 | $189.73 | | S&P 500 | $100.00 | $131.47 | $155.65 | $200.29 | $163.98 | $207.04 | | S&P MidCap 400 | $100.00 | $126.17 | $143.39 | $178.85 | $155.42 | $180.90 | | Russell 3000 | $100.00 | $131.01 | $158.36 | $198.96 | $160.71 | $202.38 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, GATX reported $259.2 million net income, with total investment volume rising to $1.67 billion, maintaining strong liquidity and a positive outlook for 2024 Consolidated Financial Highlights (2023 vs 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Income (GAAP) | $259.2 M | $155.9 M | | Diluted EPS (GAAP) | $7.12 | $4.35 | | Net Income (Non-GAAP) | $257.6 M | $217.7 M | | Diluted EPS (Non-GAAP) | $7.07 | $6.07 | | Total Revenues | $1,410.9 M | $1,273.0 M | | Total Segment Profit | $556.3 M | $418.0 M | | Investment Volume | $1,665.0 M | $1,255.8 M | - The 2024 outlook is favorable, with strong conditions expected in the North American railcar leasing market, solid demand in Europe and India, and a strong operating environment for engine leasing businesses147 - The company completed the sale of its Russian rail business and the remaining three Specialized Gas Vessels in 2023140 Discussion of Operating Results In 2023, total segment profit increased to $556.3 million, driven by significant growth in Rail International and Portfolio Management, while Rail North America's profit slightly declined Segment Profit (Loss) (in millions) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Rail North America | $307.3 | $321.3 | | Rail International | $113.4 | $85.9 | | Portfolio Management | $106.4 | $14.7 | | Other | $29.2 | $(3.9) | | Total Segment Profit | $556.3 | $418.0 | - Rail North America's segment profit decreased 4.4% to $307.3 million, primarily due to higher interest and maintenance expenses, despite a 7.6% increase in lease revenue169170 - Rail International's segment profit rose 32.0% to $113.4 million, largely due to the absence of a $14.6 million impairment on the Rail Russia business in 2022188 - Portfolio Management's segment profit increased dramatically to $106.4 million from $14.7 million in 2022, driven by higher RRPF affiliate earnings and absence of 2022 impairments203 Liquidity and Capital Resources GATX maintains strong liquidity with $450.7 million cash and $850 million in credit facilities, with recourse leverage at 3.2x and 2024 cash obligations estimated at $1.84 billion - As of December 31, 2023, GATX had $450.7 million in unrestricted cash and two fully available revolving credit facilities totaling $850 million220242 Material Cash Obligations by Period (in millions) | | Total | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Recourse debt | $7,450.6 | $526.3 | $520.8 | $611.9 | $458.4 | $735.0 | $4,598.2 | | Interest on recourse debt | $2,720.2 | $301.9 | $286.7 | $273.2 | $250.5 | $226.4 | $1,381.5 | | Purchase commitments | $2,677.9 | $958.0 | $417.5 | $527.5 | $396.2 | $378.7 | — | | Total (selected) | $12,848.7 | $1,786.2 | $1,225.0 | $1,412.6 | $1,105.1 | $1,340.1 | $5,979.7 | Recourse Leverage Ratio | | 2023 | 2022 | | :--- | :--- | :--- | | Total recourse debt (net) | $7,175.2 M | $6,254.5 M | | Shareholders' Equity | $2,273.0 M | $2,029.6 M | | Recourse Leverage | 3.2x | 3.1x | Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment and estimates for depreciation, lease classification, impairment assessments of assets and investments, pension benefits, share-based compensation, and income tax liabilities - Operating assets are depreciated over estimated economic useful lives (e.g., 15-45 years for railcars) to an estimated residual value, requiring significant judgment255328 - Long-lived assets, investments in affiliates, and goodwill are reviewed for impairment annually or when indicators are present, using estimates of future cash flows and fair value257258260 - Pension and post-retirement benefit calculations rely on actuarial assumptions such as discount rates and expected return on plan assets, which are evaluated annually261 Non-GAAP Financial Measures GATX provides non-GAAP financial measures for comparable operating results, with 2023 GAAP net income of $259.2 million adjusted to $257.6 million non-GAAP, reflecting specific adjustments Reconciliation of GAAP to Non-GAAP Net Income (in millions) | | 2023 | 2022 | | :--- | :--- | :--- | | Net income (GAAP) | $259.2 | $155.9 | | Loss on Specialized Gas Vessels | $4.0 | $34.3 | | Net (gain) loss on Rail Russia | $(0.3) | $14.6 | | Environmental remediation costs | — | $5.9 | | Aircraft spare engine impairment at RRPF (net) | — | $11.5 | | Other tax adjustments | $(5.3) | $(3.0) | | Other adjustments | — | $(1.5) | | Net income, excluding items (non-GAAP) | $257.6 | $217.7 | Reconciliation of GAAP to Non-GAAP Diluted EPS | | 2023 | 2022 | | :--- | :--- | :--- | | Diluted EPS (GAAP) | $7.12 | $4.35 | | Adjustments (per share) | $(0.05) | $1.72 | | Diluted EPS, excluding items (non-GAAP) | $7.07 | $6.07 | Quantitative and Qualitative Disclosures About Market Risk GATX is exposed to interest rate and foreign currency risks, using derivatives for hedging, with a 100 basis point interest rate increase impacting 2024 after-tax interest expense by $4.2 million - A hypothetical 100 basis point increase in market interest rates would cause an estimated increase in after-tax interest expense of $4.2 million in 2024276 - A hypothetical 10% strengthening in the U.S. dollar versus foreign currencies would decrease estimated after-tax income in 2024 by $9.7 million277 Financial Statements and Supplementary Data Consolidated financial statements for 2023 show total assets increased to $11.3 billion, total revenues to $1.41 billion, and net income to $259.2 million, with detailed disclosures in accompanying notes Consolidated Balance Sheet Highlights (as of Dec 31) | (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Total Assets | $11,326.0 | $10,072.0 | | Total Liabilities | $9,053.0 | $8,042.4 | | Total Shareholders' Equity | $2,273.0 | $2,029.6 | Consolidated Income Statement Highlights (Year Ended Dec 31) | (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues | $1,410.9 | $1,273.0 | | Net Income | $259.2 | $155.9 | | Diluted EPS | $7.12 | $4.35 | - The company is involved in litigation related to the Norfolk Southern train derailment in East Palestine, Ohio, but cannot reasonably estimate the potential loss496497499 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified auditor opinion - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period522 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023526 - Ernst & Young LLP issued an unqualified opinion on the company's internal control over financial reporting as of December 31, 2023528 Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q4 2023 - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement in Q4 2023537 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not Applicable Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement, to be filed on or about March 15, 2024 - Required information is incorporated by reference from the definitive Proxy Statement to be filed on or about March 15, 2024540 - Information regarding executive officers is also available in Part I of this Form 10-K541 Executive Compensation Information regarding director and executive officer compensation is incorporated by reference from the definitive Proxy Statement, to be filed on or about March 15, 2024 - Required information is incorporated by reference from the definitive Proxy Statement to be filed on or about March 15, 2024542 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of December 31, 2023, 1,491,160 securities were issuable under equity compensation plans at a weighted-average exercise price of $106.75, with 2,035,353 available for future issuance Equity Compensation Plan Information as of December 31, 2023 | Plan Category | Number of Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price of Outstanding Options (b) | Number of Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity Compensation Plans Approved by Shareholders | 1,491,160 | $106.75 | 2,035,353 | | Equity Compensation Plans Not Approved by Shareholders | — | | — | | Total | 1,491,160 | | 2,035,353 | - Other information regarding security ownership is incorporated by reference from the definitive Proxy Statement to be filed on or about March 15, 2024544 Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the definitive Proxy Statement, to be filed on or about March 15, 2024 - Required information is incorporated by reference from the definitive Proxy Statement to be filed on or about March 15, 2024545 Principal Accountant Fees and Services Information regarding fees paid to the principal accountant, Ernst & Young, is incorporated by reference from the definitive Proxy Statement, to be filed on or about March 15, 2024 - Required information is incorporated by reference from the definitive Proxy Statement to be filed on or about March 15, 2024546 Part IV Exhibits, Financial Statement Schedules This section lists filed financial statements, notes omitted schedules, and provides an index of all exhibits filed with or incorporated by reference into the Form 10-K - This section contains the list of financial statements, financial statement schedules (omitted as inapplicable), and exhibits filed with the report548549550 Form 10-K Summary This item is not applicable - Not Applicable