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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
__________________________________________
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 1-2328
GATX Corporation
(Exact name of registrant as specified in its charter)
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New York | 36-1124040 |
(State of incorporation) | (I.R.S. Employer Identification No.) |
233 South Wacker Drive
Chicago, Illinois 60606-7147
(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:
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Title of each class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common Stock | GATX | New York Stock Exchange |
| GATX | Chicago Stock Exchange |
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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.
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| ☒ | Large accelerated filer | | ☐ | 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 35.5 million common shares outstanding at September 30, 2024.
GATX CORPORATION
FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2024
INDEX
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Part I - FINANCIAL INFORMATION |
Item 1 | | |
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Item 2 | | |
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Item 3 | | |
Item 4 | | |
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Part II - OTHER INFORMATION |
Item 1 | | |
Item 1A | | |
Item 2 | | |
Item 5 | | |
Item 6 | | |
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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 and any subsequent reports on Form 10-Q, could cause actual results to differ materially from our current expectations expressed in forward-looking statements:
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•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 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GATX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except share data)
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| September 30 | | December 31 |
| 2024 | | 2023 |
Assets | | | |
Cash and Cash Equivalents | $ | 503.7 | | | $ | 450.7 | |
Restricted Cash | 0.1 | | | 0.1 | |
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Receivables | | | |
Rent and other receivables | 93.9 | | | 87.9 | |
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Finance leases (as lessor) | 124.8 | | | 136.4 | |
Less: allowance for losses | (5.3) | | | (5.9) | |
| 213.4 | | | 218.4 | |
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Operating Assets and Facilities | 14,243.1 | | | 13,081.9 | |
Less: allowance for depreciation | (3,866.7) | | | (3,670.7) | |
| 10,376.4 | | | 9,411.2 | |
Lease Assets (as lessee) | | | |
Right-of-use assets, net of accumulated depreciation | 173.5 | | | 212.0 | |
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| 173.5 | | | 212.0 | |
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Investments in Affiliated Companies | 690.3 | | | 627.0 | |
Goodwill | 120.9 | | | 120.0 | |
Other Assets (includes $0.4 and $0.8 related to assets held for sale) | 301.6 | | | 286.6 | |
Total Assets | $ | 12,379.9 | | | $ | 11,326.0 | |
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Liabilities and Shareholders’ Equity | | | |
Accounts Payable and Accrued Expenses | $ | 210.1 | | | $ | 239.6 | |
Debt | | | |
Commercial paper and borrowings under bank credit facilities | 11.1 | | | 11.0 | |
Recourse | 8,293.5 | | | 7,388.1 | |
| 8,304.6 | | | 7,399.1 | |
Lease Obligations (as lessee) | | | |
Operating leases | 187.5 | | | 226.8 | |
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| 187.5 | | | 226.8 | |
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Deferred Income Taxes | 1,132.2 | | | 1,081.1 | |
Other Liabilities | 108.8 | | | 106.4 | |
Total Liabilities | 9,943.2 | | | 9,053.0 | |
Shareholders’ Equity | | | |
Common stock, $0.625 par value: Authorized shares — 120,000,000 Issued shares — 69,037,897 and 68,797,027 Outstanding shares — 35,539,311 and 35,464,841 | 42.7 | | | 42.5 | |
Additional paid in capital | 840.9 | | | 816.1 | |
Retained earnings | 3,153.0 | | | 3,009.5 | |
Accumulated other comprehensive loss | (150.6) | | | (167.6) | |
Treasury stock at cost (33,498,586 and 33,332,186 shares) | (1,449.3) | | | (1,427.5) | |
Total Shareholders’ Equity | 2,436.7 | | | 2,273.0 | |
Total Liabilities and Shareholders’ Equity | $ | 12,379.9 | | | $ | 11,326.0 | |
See accompanying notes to condensed consolidated financial statements.
GATX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 | | |
| 2024 | | 2023 | | 2024 | | 2023 | | | | |
Revenues | | | | | | | | | | | |
Lease revenue | $ | 351.7 | | | $ | 317.2 | | | $ | 1,024.6 | | | $ | 927.8 | | | | | |
Non-dedicated engine revenue | 18.1 | | | 13.6 | | | 45.0 | | | 24.5 | | | | | |
Marine operating revenue | — | | | 0.6 | | | — | | | 6.1 | | | | | |
Other revenue | 35.6 | | | 28.7 | | | 102.4 | | | 83.8 | | | | | |
Total Revenues | 405.4 | | | 360.1 | | | 1,172.0 | | | 1,042.2 | | | | | |
Expenses | | | | | | | | | | | |
Maintenance expense | 95.9 | | | 87.9 | | | 283.9 | | | 254.1 | | | | | |
Marine operating expense | — | | | 1.0 | | | — | | | 5.4 | | | | | |
Depreciation expense | 103.4 | | | 96.2 | | | 297.9 | | | 278.1 | | | | | |
Operating lease expense | 8.0 | | | 9.0 | | | 26.0 | | | 27.0 | | | | | |
Other operating expense | 14.1 | | | 12.0 | | | 41.5 | | | 34.0 | | | | | |
Selling, general and administrative expense | 57.2 | | | 51.0 | | | 171.7 | | | 153.4 | | | | | |
Total Expenses | 278.6 | | | 257.1 | | | 821.0 | | | 752.0 | | | | | |
Other Income (Expense) | | | | | | | | | | | |
Net gain on asset dispositions | 48.5 | | | 16.9 | | | 110.3 | | | 105.1 | | | | | |
Interest expense, net | (88.9) | | | (68.1) | | | (249.5) | | | (190.8) | | | | | |
Other (expense) income | (0.9) | | | 1.8 | | | (10.9) | | | (7.1) | | | | | |
Income before Income Taxes and Share of Affiliates’ Earnings | 85.5 | | | 53.6 | | | 200.9 | | | 197.4 | | | | | |
Income taxes | (22.9) | | | (14.5) | | | (51.9) | | | (52.3) | | | | | |
Share of affiliates' earnings, net of taxes | 26.4 | | | 13.4 | | | 58.7 | | | 48.1 | | | | | |
Net Income | $ | 89.0 | | | $ | 52.5 | | | $ | 207.7 | | | $ | 193.2 | | | | | |
Other Comprehensive Income, Net of Taxes | | | | | | | | | | | |
Foreign currency translation adjustments | $ | 33.8 | | | $ | (40.6) | | | $ | 11.8 | | | $ | (8.7) | | | | | |
| | | | | | | | | | | |
Unrealized gain on derivative instruments | 0.4 | | | 0.8 | | | 0.7 | | | 1.4 | | | | | |
Post-retirement benefit plans | — | | | (2.0) | | | 4.5 | | | (1.0) | | | | | |
Other comprehensive income (loss) | 34.2 | | | (41.8) | | | 17.0 | | | (8.3) | | | | | |
Comprehensive Income | $ | 123.2 | | | $ | 10.7 | | | $ | 224.7 | | | $ | 184.9 | | | | | |
| | | | | | | | | | | |
Share Data | | | | | | | | | | | |
Basic earnings per share | $ | 2.44 | | | $ | 1.44 | | | $ | 5.70 | | | $ | 5.32 | | | | | |
Average number of common shares | 35.8 | | | 35.7 | | | 35.8 | | | 35.6 | | | | | |
| | | | | | | | | | | |
Diluted earnings per share | $ | 2.43 | | | $ | 1.44 | | | $ | 5.68 | | | $ | 5.30 | | | | | |
Average number of common shares and common share equivalents | 35.9 | | | 35.8 | | | 35.9 | | | 35.7 | | | | | |
See accompanying notes to condensed consolidated financial statements.
GATX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
| | | | | | | | | | | |
| Nine Months Ended September 30 |
| 2024 | | 2023 |
Operating Activities | | | |
Net income | $ | 207.7 | | | $ | 193.2 | |
| | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 311.8 | | | 289.8 | |
| | | |
Net gains on disposition of owned assets | (110.0) | | | (105.6) | |
Asset impairments | — | | | 1.2 | |
Deferred income taxes | 42.0 | | | 38.7 | |
Share of affiliates’ earnings, net of dividends | (58.7) | | | (48.1) | |
Changes in working capital items | 3.3 | | | 30.9 | |
Net cash provided by operating activities | 396.1 | | | 400.1 | |
Investing Activities | | | |
| | | |
| | | |
| | | |
Portfolio investments and capital additions | (1,325.1) | | | (1,237.5) | |
Portfolio proceeds | 171.7 | | | 208.2 | |
Proceeds from sales of other assets | 20.2 | | | 16.4 | |
Proceeds from short-term investments | — | | | 150.0 | |
Other | 1.8 | | | 2.3 | |
Net cash used in investing activities | (1,131.4) | | | (860.6) | |
Financing Activities | | | |
Net proceeds from issuances of debt (original maturities longer than 90 days) | 1,297.0 | | | 909.2 | |
Repayments of debt (original maturities longer than 90 days) | (413.5) | | | (500.0) | |
Net decrease in debt with original maturities of 90 days or less | — | | | (5.0) | |
Stock repurchases | (21.8) | | | — | |
Dividends | (63.9) | | | (60.7) | |
Purchases of assets previously on finance leases | (30.4) | | | — | |
Other | 21.7 | | | 16.4 | |
Net cash provided by financing activities | 789.1 | | | 359.9 | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | (0.8) | | | (0.2) | |
Net increase (decrease) in Cash, Cash Equivalents, and Restricted Cash during the period | 53.0 | | | (100.8) | |
Cash, Cash Equivalents, and Restricted Cash at beginning of the period | 450.8 | | | 304.0 | |
Cash, Cash Equivalents, and Restricted Cash at end of the period | $ | 503.8 | | | $ | 203.2 | |
| | | |
Non-Cash Financing Transactions | | | |
Non-cash financing lease transactions (1) | $ | 30.1 | | | $ | — | |
_________
(1) Non-cash financing lease transactions are a result of the reclassification from operating lease liability to finance lease liability upon notice of the intent to exercise an early buy-out option.
See accompanying notes to condensed consolidated financial statements.
GATX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(In millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2024 | | 2023 | | 2024 | | 2023 |
| Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars |
Common Stock | | | | | | | | | | | | | | | |
Balance at beginning of the period | 69.0 | | | $ | 42.7 | | | 68.8 | | | $ | 42.5 | | | 68.8 | | | $ | 42.5 | | | 68.6 | | | $ | 42.4 | |
Issuance of common stock | — | | | — | | | — | | | — | | | 0.2 | | | 0.2 | | | 0.2 | | | 0.1 | |
Balance at end of the period | 69.0 | | | 42.7 | | | 68.8 | | | 42.5 | | | 69.0 | | | 42.7 | | | 68.8 | | | 42.5 | |
Treasury Stock | | | | | | | | | | | | | | | |
Balance at beginning of the period | (33.4) | | | (1,436.3) | | | (33.3) | | | (1,424.9) | | | (33.3) | | | (1,427.5) | | | (33.3) | | | (1,424.9) | |
Stock repurchases | (0.1) | | | (13.0) | | | — | | | — | | | (0.2) | | | (21.8) | | | — | | | — | |
Balance at end of the period | (33.5) | | | (1,449.3) | | | (33.3) | | | (1,424.9) | | | (33.5) | | | (1,449.3) | | | (33.3) | | | (1,424.9) | |
Additional Paid In Capital | | | | | | | | | | | | | | | |
Balance at beginning of the period | | | 836.4 | | | | | 807.8 | | | | | 816.1 | | | | | 792.2 | |
Share-based compensation effects | | | 4.5 | | | | | 5.3 | | | | | 24.8 | | | | | 20.9 | |
Balance at end of the period | | | 840.9 | | | | | 813.1 | | | | | 840.9 | | | | | 813.1 | |
Retained Earnings | | | | | | | | | | | | | | | |
Balance at beginning of the period | | | 3,085.4 | | | | | 2,931.6 | | | | | 3,009.5 | | | | | 2,831.5 | |
Net income | | | 89.0 | | | | | 52.5 | | | | | 207.7 | | | | | 193.2 | |
Dividends declared ($0.58 and $0.55 per share QTR and $1.74 and $1.65 YTD) | | | (21.4) | | | | | (20.4) | | | | | (64.2) | | | | | (61.0) | |
| | | | | | | | | | | | | | | |
Balance at end of the period | | | 3,153.0 | | | | | 2,963.7 | | | | | 3,153.0 | | | | | 2,963.7 | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | |
Balance at beginning of the period | | | (184.8) | | | | | (178.1) | | | | | (167.6) | | | | | (211.6) | |
Other comprehensive income (loss) | | | 34.2 | | | | | (41.8) | | | | | 17.0 | | | | | (8.3) | |
| | | | | | | | | | | | | | | |
Balance at end of the period | | | (150.6) | | | | | (219.9) | | | | | (150.6) | | | | | (219.9) | |
Total Shareholders' Equity | | | $ | 2,436.7 | | | | | $ | 2,174.5 | | | | | $ | 2,436.7 | | | | | $ | 2,174.5 | |
See accompanying notes to condensed consolidated financial statements.
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 composed of our engine leasing operations, which include our ownership interest 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 nine months ended September 30, 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.
New Accounting Pronouncements Not Yet Adopted
| | | | | | | | |
Standard/Description | Effective Date and Adoption Considerations | Effect on Financial Statements or Other Significant Matters |
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 have completed a preliminary assessment and do not anticipate any significant changes in our existing segment disclosures upon adoption. |
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 disclosures. 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. |
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 composed 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.
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):
| | | | | | | | | | | |
| September 30 2024 | | December 31 2023 |
Railcars and locomotives | $ | 12,703.5 | | | $ | 11,700.8 | |
Aircraft spare engines | 935.8 | | | 769.7 | |
Tank containers | 256.4 | | | 237.7 | |
Buildings, leasehold improvements, and other equipment | 257.1 | | | 253.0 | |
Other | 90.3 | | | 120.7 | |
| $ | 14,243.1 | | | $ | 13,081.9 | |
Less: allowance for depreciation | (3,866.7) | | | (3,670.7) | |
Net operating assets and facilities | $ | 10,376.4 | | | $ | 9,411.2 | |
Total depreciation expense was $108.0 million and $311.5 million for the three and nine months ended September 30, 2024 and $100.0 million and $289.4 million for the three and nine months ended September 30, 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 September 30 | | Nine Months Ended September 30 |
| 2024 | | 2023 | | 2024 | | 2023 |
Operating lease revenue: | | | | | | | |
Fixed lease revenue | $ | 320.8 | | | $ | 289.7 | | | $ | 937.0 | | | $ | 848.2 | |
Variable lease revenue | 27.6 | | | 24.2 | | | 77.3 | | | 70.6 | |
Total operating lease revenue | $ | 348.4 | | | $ | 313.9 | | | $ | 1,014.3 | | | $ | 918.8 | |
Finance lease revenue | 3.3 | | | 3.3 | | | 10.3 | | | 9.0 | |
Total lease revenue | $ | 351.7 | | | $ | 317.2 | | | $ | 1,024.6 | | | $ | 927.8 | |
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 $29.7 million and $86.5 million for the three and nine months ended September 30, 2024 and $23.1 million and $68.8 million for the three and nine months ended September 30, 2023.
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 September 30, 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 September 30, 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 three instruments outstanding with a notional amount of $6.6 million as of September 30, 2024 that mature in 2024 and one instrument outstanding with a notional amount of $131.0 million as of December 31, 2023 that matured in 2024. Within the next 12 months, we expect to reclassify $1.2 million ($0.9 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 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 $4.3 million as of September 30, 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.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following table shows our the fair value and notional amounts of our derivative assets and liabilities (in millions):
| | | | | | | | | | | | | | | | | | | |
| | | | Significant Observable Inputs (Level 2) |
| | | | | | |
| Balance Sheet Location | | | Fair Value September 30, 2024 | | | Fair Value December 31, 2023 |
Derivative Assets | | | | | | | |
| | | | | | | |
Foreign exchange contracts (1) | Other assets | | | $ | — | | | | $ | 0.5 | |
| | | | | | | |
| | | | | | | |
Total derivative assets | | | | $ | — | | | | $ | 0.5 | |
Derivative Liabilities | | | | | | | |
Interest rate contracts (1) | Other liabilities | | | $ | 4.3 | | | | $ | 8.0 | |
| | | | | | | |
Foreign exchange contracts (2) | Other liabilities | | | 10.8 | | | | 10.5 | |
Total derivative liabilities | | | | $ | 15.1 | | | | $ | 18.5 | |
_________(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 September 30, 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 | | September 30 2024 | | December 31 2023 | | September 30 2024 | | December 31 2023 |
Recourse debt | | $ | (198.5) | | | $ | (196.8) | | | $ | (4.3) | | | $ | (8.0) | |
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 (Gain) Loss Recognized in Other Comprehensive Income (Loss) |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
Derivative Designation | | 2024 | | 2023 | | 2024 | | 2023 |
Derivatives in cash flow hedging relationships: | | | | |
Foreign exchange contracts | | $ | — | | | $ | (6.1) | | | $ | (3.4) | | | $ | (3.6) | |
Total | | $ | — | | | $ | (6.1) | | | $ | (3.4) | | | $ | (3.6) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 September 30 | | Nine Months Ended September 30 | | | |
| 2024 | | 2023 | | 2024 | | 2023 | | | |
Interest expense | | $ | 0.4 | | | $ | 0.4 | | | $ | 1.2 | | | $ | 1.2 | | | | |
Other (expense) income | | — | | | (5.7) | | | (3.7) | | | (3.3) | | | | |
Total | | $ | 0.4 | | | $ | (5.3) | | | $ | (2.5) | | | $ | (2.1) | | | | |
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 (Loss) Gain Recognized in Interest Expense on Fair Value and Cash Flow Hedging Relationships |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2024 | | 2023 | | 2024 | | 2023 |
Total interest expense | $ | (88.9) | | | $ | (68.1) | | | $ | (249.5) | | | $ | (190.8) | |
(Loss) gain on fair value hedging relationships | | | | | | | |
Interest rate contracts: | | | | | | | |
Hedged items | (3.1) | | | (0.2) | | | (3.7) | | | 0.1 | |
Derivatives designated as hedging instruments | 3.1 | | | 0.2 | | | 3.7 | | | (0.1) | |
Loss on cash flow hedging relationships | | | | | | | |
Interest rate contracts: | | | | | | | |
Amount of loss reclassified from accumulated other comprehensive loss into earnings | (0.4) | | | (0.4) | | | (1.2) | | | (1.2) | |
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| Amount of (Loss) Gain Recognized in Other Expense on Cash Flow Hedging Relationships and Non-Designated Derivative Contracts |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2024 | | 2023 | | 2024 | | 2023 |
Total other (expense) income | $ | (0.9) | | | $ | 1.8 | | | $ | (10.9) | | | $ | (7.1) | |
Gain on cash flow hedging relationships | | | | | | | |
Foreign exchange contracts: | | | | | | | |
Amount of gain reclassified from accumulated other comprehensive loss into earnings (1) | — | | | 5.7 | | | 3.7 | | | 3.3 | |
Gain (loss) on non-designated derivative contracts (2) | 0.9 | | | 3.2 | | | (0.3) | | | (8.0) | |
_________
(1) These amounts are substantially offset by foreign currency remeasurement adjustments on related hedged instruments, also recognized in other expense.
(2) Foreign exchange contracts.
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):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Liabilities | | | | | | | |
Recourse fixed rate debt | $ | 7,701.8 | | | $ | 7,530.6 | | | $ | 7,026.6 | | | $ | 6,614.6 | |
Recourse floating rate debt | 591.7 | | | 600.9 | | | 361.5 | | | 362.9 | |
Total | $ | 8,293.5 | | | $ | 8,131.5 | | | $ | 7,388.1 | | | $ | 6,977.5 | |
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 September 30, 2024 and 2023 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2024 Pension Benefits | | 2023 Pension Benefits | | 2024 Retiree Health and Life | | 2023 Retiree Health and Life |
Service cost | $ | 1.6 | | | $ | 1.3 | | | $ | — | | | $ | — | |
Interest cost | 4.1 | | | 4.1 | | | 0.2 | | | 0.1 | |
Expected return on plan assets | (5.4) | | | (5.2) | | | — | | | — | |
| | | | | | | |
Amortization of (1): | | | | | | | |
Unrecognized prior service credit | — | | | — | | | (0.1) | | | — | |
Unrecognized net actuarial loss (gain) | 0.3 | | | 0.2 | | | (0.1) | | | (0.1) | |
Net periodic cost | $ | 0.6 | | | $ | 0.4 | | | $ | — | | | $ | — | |
| | | | | | | |
The following table shows the components of net periodic cost for the nine months ended September 30, 2024 and 2023 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2024 Pension Benefits | | 2023 Pension Benefits | | 2024 Retiree Health and Life | | 2023 Retiree Health and Life |
Service cost | $ | 4.6 | | | $ | 4.0 | | | $ | 0.1 | | | $ | 0.1 | |
Interest cost | 12.3 | | | 12.4 | | | 0.5 | | | 0.5 | |
Expected return on plan assets | (16.2) | | | (15.9) | | | — | | | — | |
Settlement accounting adjustment | — | | | 1.4 | | | — | | | — | |
Amortization of (1): | | | | | | | |
Unrecognized prior service credit | — | | | — | | | (0.2) | | | (0.2) | |
Unrecognized net actuarial loss (gain) | 0.8 | | | 0.7 | | | (0.4) | | | (0.4) | |
Net periodic cost | $ | 1.5 | | | $ | 2.6 | | | $ | — | | | $ | — | |
| | | | | | | |
_________
(1) Amounts reclassified from accumulated other comprehensive loss.
The service cost component of net periodic cost that is recorded in selling, general and administrative expense was $1.6 million and $4.7 million for the three and nine months ended September 30, 2024, and $1.3 million and $4.1 million for the three and nine months ended September 30, 2023.
The non-service components totaled income of $1.0 million and $3.2 million for the three and nine months ended September 30, 2024, and $0.9 million and $1.5 million for the three and nine months ended September 30, 2023.
Certain lump sum distributions paid to retirees triggered settlement accounting, resulting in the recognition of $1.4 million of expense for the nine months ended September 30, 2023.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE 8. Share-Based Compensation
During the nine months ended September 30, 2024, we granted 194,100 non-qualified employee stock options, 32,114 restricted stock units, 38,940 performance shares, and 12,712 restricted stock units awarded to non-employee directors. For the three and nine months ended September 30, 2024, total share-based compensation expense was $4.8 million and $15.6 million and the related tax benefits were $1.2 million and $3.7 million. For the three and nine months ended September 30, 2023, total share-based compensation expense was $2.8 million and $11.4 million and the related tax benefits were $0.7 million and $2.9 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 | $ | 45.22 | |
Quarterly dividend rate | $ | 0.58 | |
Expected term of stock options, in years | 4.2 |
Risk-free interest rate | 4.0 | % |
Dividend yield | 1.8 | % |
Expected stock price volatility | 34.7 | % |
Present value of dividends | $ | 8.87 | |
NOTE 9. Income Taxes
The following table shows our effective income tax rate for the nine months ended September 30:
| | | | | | | | | | | |
| 2024 | | 2023 |
Effective income tax rate | 25.8 | % | | 26.5 | % |
The decrease in the effective rate for the current year compared to the prior year was primarily due to an increase in the incremental benefits associated with equity awards vested or exercised during the current year, a release of a Canadian tax reserve, as well as the mix of pre-tax income among domestic and foreign jurisdictions, which are taxed at different rates.
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):
| | | | | | | | | | | |
| September 30 2024 | | December 31 2023 |
Standby letters of credit and performance bonds | $ | 8.7 | | | $ | 8.7 | |
Total commercial commitments (1) | $ | 8.7 | | | $ | 8.7 | |
_________
(1) There were no liabilities recorded on the balance sheet for commercial commitments at September 30, 2024 and December 31, 2023. As of September 30, 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.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 September 30 | | Nine Months Ended September 30 |
| 2024 | | 2023 | | 2024 | | 2023 |
Basic earnings per share: | | | | | | | |
Net income | $ | 89.0 | | | $ | 52.5 | | | $ | 207.7 | | | $ | 193.2 | |
Less: Net income allocated to participating securities | (1.5) | | | (0.9) | | | (3.7) | | | (3.7) | |
Net income available to common shareholders | $ | 87.5 | | | $ | 51.6 | | | $ | 204.0 | | | $ | 189.5 | |
Weighted-average shares outstanding - basic | 35.8 | | | 35.7 | | | 35.8 | | | 35.6 | |
Basic earnings per share | $ | 2.44 | | | $ | 1.44 | | | $ | 5.70 | | | $ | 5.32 | |
| | | | | | | |
Diluted earnings per share: | | | | | | | |
Net income | $ | 89.0 | | | $ | 52.5 | | | $ | 207.7 | | | $ | 193.2 | |
Less: Net income allocated to participating securities | (1.5) | | | (0.9) | | | (3.7) | | | (3.7) | |
Net income available to common shareholders | $ | 87.5 | | | $ | 51.6 | | | $ | 204.0 | | | $ | 189.5 | |
Weighted-average shares outstanding - basic | 35.8 | | | 35.7 | | | 35.8 | | | 35.6 | |
Effect of dilutive securities: | | | | | | | |
Equity compensation plans | 0.1 | | | 0.1 | | | 0.1 | | | 0.1 | |
Weighted-average shares outstanding - diluted | 35.9 | | | 35.8 | | | 35.9 | | | 35.7 | |
Diluted earnings per share | $ | 2.43 | | | $ | 1.44 | | | $ | 5.68 | | | $ | 5.30 | |
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 | $ | (106.3) | | | | | $ | (9.9) | | | $ | (51.4) | | | $ | (167.6) | |
Change in component | (14.4) | | | | | 3.4 | | | 6.0 | | | (5.0) | |
Reclassification adjustments into earnings (1) | — | | | | | (3.3) | | | — | | | (3.3) | |
Income tax effect | — | | | | | — | | | (1.5) | | | (1.5) | |
Accumulated other comprehensive loss at March 31, 2024 | $ | (120.7) | | | | | $ | (9.8) | | | $ | (46.9) | | | $ | (177.4) | |
Change in component | (7.6) | | | | | — | | | — | | | (7.6) | |
Reclassification adjustments into earnings (1) | — | | | | | 0.4 | | | 0.1 | | | 0.5 | |
Income tax effect | — | | | | | (0.2) | | | (0.1) | | | (0.3) | |
Accumulated other comprehensive loss at June 30, 2024 | $ | (128.3) | | | | | $ | (9.6) | | | $ | (46.9) | | | $ | (184.8) | |
Change in component | 33.8 | | | | | — | | | — | | | 33.8 | |
Reclassification adjustments into earnings (1) | — | | | | | 0.4 | | | 0.1 | | | 0.5 | |
Income tax effect | — | | | | | — | | | (0.1) | | | (0.1) | |
Accumulated other comprehensive loss at September 30, 2024 | $ | (94.5) | | | | | $ | (9.2) | | | $ | (46.9) | | | $ | (150.6) | |
_________
(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. The Court has not yet ruled on Norfolk Southern’s motion. In the interim, on May 23, 2024, Norfolk Southern entered into a Consent Decree settling claims with the United States Department of Justice and Environmental Protection Agency (but not the State of Ohio) to which GATX is not a party.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 reached a settlement 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. On September 25, 2024, the Court held a final approval hearing and two days later issued its final approval order for the settlement. To date, a handful of appeals challenging the fairness, reasonableness and adequacy of the settlement have been filed with the Sixth Circuit Court of Appeals. On October 9, 2024, all parties to the litigation filed motions for summary judgment for the pending claims. Norfolk Southern has requested leave to reinstate its contribution claims against GATX and others. Trial is currently scheduled for March 31, 2025.
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 four Pennsylvania school districts and their students. The allegations largely mirror those in the action filed in federal court in Ohio. The amended complaint seeks monetary damages for the Pennsylvania plaintiffs for personal injury and property damage allegedly related to the derailment. The Company and other defendants filed a motion to dismiss on February 23, 2024. Briefing has been completed and the motions remain pending and undecided. The Court has not set any further deadlines.
The Company is vigorously defending 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 has not established any accruals for potential liability related to this incident.
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.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
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 composed of our engine leasing operations, which include our ownership interest 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 $1.1 million and $2.9 million for the three and nine months ended September 30, 2024 and $0.9 million and $1.9 million for the three and nine months ended September 30, 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.
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 September 30, 2024 | | | | | | | | |
Revenues | | | | | | | | | |
Lease revenue | $ | 249.2 | | | $ | 86.3 | | | $ | 8.1 | | | $ | 8.1 | | | $ | 351.7 | |
Non-dedicated engine revenue | — | | | — | | | 18.1 | | | — | | | 18.1 | |
Other revenue | 29.3 | | | 4.3 | | | — | | | 2.0 | | | 35.6 | |
Total Revenues | 278.5 | | | 90.6 | | | 26.2 | | | 10.1 | | | 405.4 | |
Expenses | | | | | | | | | |
Maintenance expense | 77.7 | | | 17.0 | | | — | | | 1.2 | | | 95.9 | |
| | | | | | | | | |
Depreciation expense | 69.2 | | | 20.3 | | | 10.1 | | | 3.8 | | | 103.4 | |
Operating lease expense | 8.0 | | | — | | | — | | | — | | | 8.0 | |
Other operating expense | 7.0 | | | 3.7 | | | 2.6 | | | 0.8 | | | 14.1 | |
Total Expenses | 161.9 | | | 41.0 | | | 12.7 | | | 5.8 | | | 221.4 | |
Other Income (Expense) | | | | | | | | | |
Net gain on asset dispositions | 46.7 | | | 1.7 | | | — | | | 0.1 | | | 48.5 | |
Interest (expense) income, net | (60.2) | | | (18.5) | | | (11.3) | | | 1.1 | | | (88.9) | |
Other (expense) income | (0.8) | | | 1.1 | | | 0.1 | | | (1.3) | | | (0.9) | |
Share of affiliates' pre-tax earnings | 0.1 | | | — | | | 35.2 | | | — | | | 35.3 | |
Segment profit | $ | 102.4 | | | $ | 33.9 | | | $ | 37.5 | | | $ | 4.2 | | | $ | 178.0 | |
Less: | | | | | | | | | |
Selling, general and administrative expense | 57.2 | |
Income taxes (includes $8.9 related to affiliates' earnings) | 31.8 | |
Net income | $ | 89.0 | |
| |
Net Gain on Asset Dispositions | | | | | | | | | |
Asset Remarketing Income: | | | | | | | | | |
Net gains on disposition of owned assets | $ | 43.6 | | | $ | 1.2 | | | $ | — | | | $ | 0.1 | | | $ | 44.9 | |
Residual sharing income | 0.1 | | | — | | | — | | | — | | | 0.1 | |
Non-remarketing net gains (1) | 3.0 | | | 0.5 | | | — | | | — | | | 3.5 | |
| | | | | | | | | |
| $ | 46.7 | | | $ | 1.7 | | | $ | — | | | $ | 0.1 | | | $ | 48.5 | |
| | | | | | | | | |
Capital Expenditures | | | | | | | | | |
Portfolio investments and capital additions | $ | 325.9 | | | $ | 80.6 | | | $ | 94.8 | | | $ | 3.2 | | | $ | 504.5 | |
| | | | | | | | | |
Selected Balance Sheet Data at September 30, 2024 | | | | | | |
Investments in affiliated companies | $ | 0.3 | | | $ | — | | | $ | 690.0 | | | $ | — | | | $ | 690.3 | |
Identifiable assets | $ | 7,654.8 | | | $ | 2,358.5 | | | $ | 1,576.7 | | | $ | 789.9 | | | $ | 12,379.9 | |
_________
(1) Includes net gains from scrapping of railcars.
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 September 30, 2023 | | | | | | | | |
Revenues | | | | | | | | | |
Lease revenue | $ | 225.2 | | | $ | 75.6 | | | $ | 8.1 | | | $ | 8.3 | | | $ | 317.2 | |
Non-dedicated engine revenue | — | | | — | | | 13.6 | | | — | | | 13.6 | |
Marine operating revenue | — | | | — | | | 0.6 | | | — | | | 0.6 | |
Other revenue | 22.7 | | | 3.6 | | | 0.1 | | | 2.3 | | | 28.7 | |
Total Revenues | 247.9 | | | 79.2 | | | 22.4 | | | 10.6 | | | 360.1 | |
Expenses | | | | | | | | | |
Maintenance expense | 69.4 | | | 17.1 | | | — | | | 1.4 | | | 87.9 | |
Marine operating expense | — | | | — | | | 1.0 | | | — | | | 1.0 | |
Depreciation expense | 66.9 | | | 17.5 | | | 8.4 | | | 3.4 | | | 96.2 | |
Operating lease expense | 9.0 | | | — | | | — | | | — | | | 9.0 | |
Other operating expense | 6.5 | | | 2.7 | | | 2.1 | | | 0.7 | | | 12.0 | |
Total Expenses | 151.8 | | | 37.3 | | | 11.5 | | | 5.5 | | | 206.1 | |
Other Income (Expense) | | | | | | | | | |
Net gain on asset dispositions | 15.5 | | | 0.9 | | | 0.2 | | | 0.3 | | | 16.9 | |
Interest (expense) income, net | (46.6) | | | (14.5) | | | (8.7) | | | 1.7 | | | (68.1) | |
Other income (expense) | 1.2 | | | (0.1) | | | (0.2) | | | 0.9 | | | 1.8 | |
Share of affiliates' pre-tax (losses) earnings | (0.1) | | | — | | | 18.0 | | | — | | | 17.9 | |
Segment profit | $ | 66.1 | | | $ | 28.2 | | | $ | 20.2 | | | $ | 8.0 | | | $ | 122.5 | |
Less: | | | | | | | | | |
Selling, general and administrative expense | 51.0 | |
Income taxes (includes $4.5 related to affiliates' earnings) | 19.0 | |
| |
| |
| | | | | | | | | |
| | |
| | |
| | |
| | | | | | | | | |
Net income | | $ | 52.5 | |
| | | | | | | | | |
Net Gain on Asset Dispositions | | | | | | | | | |
Asset Remarketing Income: | | | | | | | | | |
Net gains on disposition of owned assets | $ | 13.0 | | | $ | — | | | $ | — | | | $ | 0.1 | | | $ | 13.1 | |
Residual sharing income | 0.1 | | | — | | | 0.2 | | | — | | | 0.3 | |
Non-remarketing net gains (1) | 2.4 | | | 0.9 | | | — | | | 0.2 | | | 3.5 | |
| | | | | | | | | |
| $ | 15.5 | | | $ | 0.9 | | | $ | 0.2 | | | $ | 0.3 | | | $ | 16.9 | |
| | | | | | | | | |
Capital Expenditures | | | | | | | | | |
Portfolio investments and capital additions | $ | 197.0 | | | $ | 129.6 | | | $ | 28.3 | | | $ | 9.0 | | | $ | 363.9 | |
| | | | | | | | | |
Selected Balance Sheet Data at December 31, 2023 | | | | | | |
Investments in affiliated companies | $ | 0.2 | | | $ | — | | | $ | 626.8 | | | $ | — | | | $ | 627.0 | |
Identifiable assets | $ | 6,993.8 | | | $ | 2,175.2 | | | $ | 1,355.1 | | | $ | 801.9 | | | $ | 11,326.0 | |
_________
(1) Includes net gains from scrapping of railcars
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rail North America | | Rail International | | Engine Leasing | | Other | | GATX Consolidated |
Nine Months Ended September 30, 2024 | | | | | | | | |
Revenues | | | | | | | | | |
Lease revenue | $ | 727.8 | | | $ | 248.9 | | | $ | 24.3 | | | $ | 23.6 | | | $ | 1,024.6 | |
Non-dedicated engine revenue | — | | | — | | | 45.0 | | | — | | | 45.0 | |
Other revenue | 86.1 | | | 10.6 | | | — | | | 5.7 | | | 102.4 | |
Total Revenues | 813.9 | | | 259.5 | | | 69.3 | | | 29.3 | | | 1,172.0 | |
Expenses | | | | | | | | | |
Maintenance expense | 228.0 | | | 52.7 | | | — | | | 3.2 | | | 283.9 | |
| | | | | | | | | |
Depreciation expense | 201.1 | | | 58.6 | | | 27.1 | | | 11.1 | | | 297.9 | |
Operating lease expense | 26.0 | | | — | | | — | | | — | | | 26.0 | |
Other operating expense | 20.1 | | | 10.8 | | | 7.0 | | | 3.6 | | | 41.5 | |
Total Expenses | 475.2 | | | 122.1 | | | 34.1 | | | 17.9 | | | 649.3 | |
Other Income (Expense) | | | | | | | | | |
Net gain on asset dispositions | 105.8 | |