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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2328
logo12312017a02.jpg
GATX Corporation
(Exact name of registrant as specified in its charter)
New York
36-1124040
(State or Other Jurisdiction of incorporation or Organization)
(I.R.S. Employer Identification No.)
233 South Wacker Drive
Chicago, IL 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:
Title of each class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock
GATX
New York Stock Exchange
 
 
Chicago Stock Exchange
5.625% Senior Notes due 2066
GMTA
New York Stock Exchange


Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

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 þ     No o

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 þ  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.
Large accelerated filer
þ
Accelerated filer
o
Non-accelerated filer  
o
Smaller reporting company
 
 
Emerging growth company
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.    o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $2.8 billion as of June 30, 2019.

There were 34.9 million common shares outstanding at January 31, 2020.

DOCUMENTS INCORPORATED BY REFERENCE
GATX’s definitive Proxy Statement to be filed on or about March 13, 2020
PART III






GATX CORPORATION
2019 FORM 10-K
INDEX
Item No.
 
Page
 
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
 
 
 
 
 
 
 
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
 






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. These 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 this report and in our other filings with the U.S. Securities and Exchange Commission (“SEC”), could cause actual results to differ materially from our current expectations expressed in forward-looking statements:

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 our railcars and other transportation assets
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
a significant decline in customer demand for our assets or services, including as a result of:
weak macroeconomic conditions
weak market conditions in our customers' businesses
declines in harvest or production volumes
adverse changes in the price of, or demand for, commodities
changes in railroad operations or efficiency
changes in railroad pricing and service offerings, including those related to "precision scheduled railroading"
changes in supply chains
availability of pipelines, trucks, and other alternative modes of transportation
changes in conditions affecting the aviation industry, including geographic exposure and customer concentrations
other operational or commercial needs or decisions of our customers
customers' desire to buy, rather than lease, our transportation assets
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 railcar purchase commitments, including increased costs due to tariffs or trade disputes
reduced opportunities to generate asset remarketing income
inability to successfully consummate and manage ongoing acquisition and divestiture activities
operational and financial risks related to our affiliate investments, including the Rolls-Royce & Partners Finance joint ventures, and the durability and reliability of aircraft engines
fluctuations in foreign exchange rates
failure to successfully negotiate collective bargaining agreements with the unions representing a substantial portion of our employees
asset impairment charges we may be required to recognize
deterioration of conditions in the capital markets, reductions in our credit ratings, or increases in our financing costs
uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021
competitive factors in our primary markets, including competitors with a significantly lower cost of capital than GATX
risks related to our international operations and expansion into new geographic markets, including the inability to access railcar supply and the imposition of new or additional tariffs, quotas, or trade barriers
changes in, or failure to comply with, laws, rules, and regulations
inability to obtain cost-effective insurance
environmental remediation costs
potential obsolescence of our assets
inadequate allowances to cover credit losses in our portfolio
operational, functional and regulatory risks associated with severe weather events, climate change and natural disasters
inability to maintain and secure our information technology infrastructure from cybersecurity threats and related disruption of our business


1


PART I

Item 1. Business

GENERAL

GATX Corporation ("GATX", "we," "us," "our," and similar terms), a New York corporation founded in 1898, is the leading global railcar lessor, owning fleets in North America, Europe, and Asia. In addition, we operate the largest fleet of U.S.-flagged vessels on the Great Lakes and, jointly with Rolls-Royce plc, we own one of the largest aircraft spare engine lease portfolios in the world. We report our financial results through four primary business segments: Rail North America, Rail International, Portfolio Management, and American Steamship Company (“ASC”). On February 7, 2020, we entered into an agreement to sell ASC. The sale is subject to customary closing conditions. See "Note 25. Subsequent Events" in Part II, Item 8 of this Form 10-K for additional information.
 
The following description of our business should be read in conjunction with the information contained in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 and the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

At December 31, 2019, we had total assets of $8.3 billion, composed largely of railcars.

OPERATIONS
GATX RAIL BUSINESS OVERVIEW

We strive to be recognized as the finest railcar leasing company in the world by our customers, our shareholders, our employees, and the communities where we operate. Our wholly owned fleet of approximately 147,000 railcars is one of the largest railcar lease fleets in the world. We currently lease tank cars, freight cars, and locomotives in North America, tank cars and freight cars in Europe and Russia, and freight cars in India. The following table sets forth our worldwide rail fleet data as of December 31, 2019:
 
Tank
Railcars
 
Freight
Railcars
 
Total Fleet
 
Managed
Railcars
 
Total Railcars
 
Locomotives
Rail North America
60,937

 
57,172

 
118,109

 
288

 
118,397

 
629

Rail International
21,524

 
7,096

 
28,620

 
35

 
28,655

 

Total
82,461

 
64,268

 
146,729

 
323

 
147,052

 
629



2


Our rail customers primarily operate in the petroleum, chemical, food/agriculture, and transportation industries. Our worldwide railcar fleet consists of diverse railcar types that our customers use to ship nearly 600 different commodities. The following table presents an overview of our railcar types as well as the industries of our customers and the commodities they ship.

 
General-Service Tank Cars
High-Pressure Tank Cars
Specialty and Acid Tank Cars
Specialty/Pneumatic Covered Hoppers
Gravity Covered Hoppers
Open-Top Cars
Boxcars
Principal Industries Served
Petroleum
Petroleum
Chemical
Plastics
Agriculture
Energy
Food
Agriculture
Chemical
Petroleum
Food
Energy
Steel
Consumer Goods
Construction
 
 
Industrial
Industrial
Construction
Forest Products
Food
 
 
 
Construction
Forest Products
Packaging
Chemical
 
 
 
 
 
Construction
 
 
 
 
 
 
 
 
Principal Commodities
Refined Petroleum Products
Natural Gas Liquids
Sulfuric Acid
Plastics
Fertilizer
Coal
Packaged Food and Beverages
Fertilizer
Propylene
Molten Sulfur
Flour
Grain
Metals and Related
Paper and Packaging
Biofuels
Vinyl Chloride Monomer
Hydrochloric Acid
Sugar
Sand
Aggregates
Lumber and Building Products
Edible Oils and Syrups
Miscellaneous Chemicals
Caustic Soda
Starch
Cement
Coke
Mixed Freight
Chemicals
 
Phosphoric Acid
Carbon Black
Soda Ash
Waste
 


fleet.jpgindustries.jpg
RAIL NORTH AMERICA

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. These railcars have estimated economic useful lives of 27 to 45 years and an average age of approximately 20 years. Rail North America has a large and diverse customer base, serving approximately 850 customers. In 2019, no single customer accounted for more than 6% of Rail North America’s total lease revenue, and the top ten customers combined accounted for approximately 23% of Rail North America’s total lease revenue. Rail North America leases railcars for terms that generally range from one to ten years, which vary based on railcar types and market conditions. The average remaining lease term of the North American fleet was approximately 38 months as of December 31, 2019. Rail North America’s primary competitors are Union Tank Car Company, Wells Fargo Rail, the CIT Group, Trinity Industries Leasing Company, and SMBC Rail Services, LLC. Rail North America competes primarily on the basis of lease rate, maintenance capabilities, customer relationships, engineering expertise, and availability of railcars.


3


Rail North America purchases new railcars from a number of manufacturers, including Trinity Rail Group, LLC, The Greenbrier Companies, Inc., National Steel Car Ltd., and Freightcar America. We also acquire railcars in the secondary market. In 2014, we entered into a long-term supply agreement with Trinity Rail Group, LLC ("Trinity") a subsidiary of Trinity Industries. Under the terms of that agreement, we agreed to order 8,950 newly built railcars. As of December 31, 2019, all 8,950 railcars have been ordered, of which 7,678 railcars have been delivered. On May 24, 2018, we amended our long-term supply agreement with Trinity to extend the term to December 2023, and we agreed to purchase an additional 4,800 tank cars (1,200 per year) beginning in January 2020 and continuing through the expiration of the extended term. At December 31, 2019, 1,128 railcars have been ordered pursuant to the amended terms of the agreement.

In 2018, we entered into a multi-year railcar supply agreement with American Railcar Industries, Inc. ("ARI"), pursuant to which we will purchase 7,650 newly built railcars. The order encompasses a mix of tank and freight cars that are to be delivered over a five-year period, beginning in April 2019. ARI's railcar manufacturing business was subsequently acquired by The Greenbrier Companies, Inc. ("Greenbrier") on July 26, 2019, and Greenbrier assumed all of ARI's obligations under our long-term supply agreement. Under this agreement, 450 railcars were to be delivered in 2019, with the remaining 7,200 to be delivered ratably over the four-year period of 2020 to 2023. As of December 31, 2019, 2,129 railcars have been ordered. The agreement also includes an option to order up to an additional 4,400 railcars subject to certain restrictions.

Additionally, we acquired a fleet of 3,098 railcars from ECN Capital Corporation, with 2,832 of the railcars acquired in 2018 and the remaining 266 railcars in early 2019.

Rail North America also owns a fleet of locomotives, consisting of 601 four-axle and 28 six-axle locomotives as of December 31, 2019. Locomotive customers are primarily regional and short-line railroads, industrial users, and Class I railroads. Lease terms vary from month-to-month to ten years. As of December 31, 2019, the average remaining lease term of the locomotive fleet was approximately two years. Rail North America's primary competitors in locomotive leasing are Wells Fargo Rail, CIT Group Inc., and Progress Rail Services Corporation. Competitive factors in the market include lease rates, customer service, maintenance, and availability of locomotives.

Rail North America also remarkets its rail assets, and such remarketing activities may generate gains which could contribute significantly to Rail North America’s segment profit.

Maintenance

Rail North America operates an extensive network of maintenance facilities in the United States and Canada dedicated to performing safe, timely, efficient, and high-quality railcar maintenance services for customers. Services include interior cleaning of railcars, routine maintenance and general repairs to the car body and safety appliances, regulatory compliance work, wheelset replacements, interior blast and lining, exterior blast and painting, and car stenciling. To the extent possible, railcar maintenance is scheduled in a manner that minimizes the amount of time the car is out of service.
In order to increase the efficiency of our maintenance network, Rail North America sold two of its maintenance facilities during 2019. Additionally, Rail North America ceased operations of one mobile repair unit ("MRU") and sold nine others over the course of 2019. Railcar maintenance demand was not sufficient enough to consistently achieve adequate productivity from these fixed locations or the MRU's. At December 31, 2019, Rail North America’s maintenance network consisted of:
Six major maintenance facilities that can complete all types of maintenance services.
Two maintenance facilities that primarily focus on routine cleaning, repair, and regulatory compliance services.
Five customer-dedicated sites operating within specific customer facilities that offer services tailored to the needs of our customers’ fleets.
Five locations with mobile units that travel to many track-side field locations to provide spot repairs and interior cleaning services.
The maintenance network is supplemented by a number of preferred third-party maintenance providers and railroads. In 2019, wholly owned and third-party maintenance facilities performed approximately 47,000 service events, including multiple independent service events for the same car. In 2019, third-party maintenance network expenses accounted for approximately 30% of Rail North America’s total maintenance network expenses, excluding repairs performed by the railroads. Approximately 71% of the maintenance hours incurred for our tank cars and specialty freight cars during 2019 were performed at our own maintenance facilities.

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Our maintenance activities are dedicated to servicing our wholly owned railcar fleet pursuant to the provisions of our lease contracts. This may include services that are not included in the full-service lease agreement, such as repairs of railcar damage or other customer-specific requirements. Revenue earned from these types of maintenance services is recorded in other revenue.

Affiliates

We previously owned a 12.5% interest in Adler Funding LLC ("Adler"), a railcar leasing partnership that was formed in 2010 with UniCredit Bank AG, Sperber Rail Holdings Inc., and LBT Holding Corporation. Rail North America provided leasing, maintenance and asset remarketing services to Adler, for which it received a base service fee and a performance-based asset remarketing fee. All Adler railcar assets were sold in 2018, and the partnership is in the process of winding down remaining activities. There was no income or loss recognized from this partnership in 2019.

RAIL INTERNATIONAL

Rail International is composed of our operations in Europe ("GATX Rail Europe" or "GRE"), India ("GRI"), and Russia ("Rail Russia"). 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. These railcars have estimated useful lives of 30 to 40 years and an average age of approximately 18 years. GRE has a diverse customer base with approximately 220 customers. In 2019, two customers each accounted for more than 10% of GRE's total lease revenue and the top ten customers combined accounted for approximately 55% of GRE's total lease revenue. GRE's lease terms generally range from one to ten years and as of December 31, 2019, the average remaining lease term of the European fleet was approximately 22 months. GRE's primary competitors are VTG Aktiengesellschaft, the Ermewa Group, Wascosa AG, and On Rail. It competes principally on the basis of customer relationships, lease rate, maintenance expertise, and availability of railcars.

GRE acquires new railcars primarily from Greenbrier-Astra Rail (Wagony Swidnica sp. z.o.o and Astra Rail Industries S.A.), Tatravagónka a.s., and Gök Yapi San. Tic. a.s. Additionally, GRE's Ostróda, Poland maintenance facility assembles several hundred tank cars each year. As of December 31, 2019, GRE had commitments to acquire from third parties, primarily from Tatravagónka a.s., and Gök Yapi San. Tic. a.s., approximately 1,300 newly manufactured railcars to be delivered in 2020 and 2021. The majority of these railcars have committed leases in place with customers.

As of December 31, 2019, GRI owned 3,679 railcars with estimated useful lives of 15-25 years. GRI's leases are net leases and have terms generally ranging from three to twelve years. As of December 31, 2019, the average remaining lease term of the Indian fleet was approximately 6 years. GRI has a small customer base with approximately ten customers in the automotive, container, steel, cement, and bulk commodities transport sector, as well as one customer in the public sector. As of December 31, 2019, GRI had entered into contracts to acquire 646 railcars to be delivered in 2020, the majority of which have committed leases in place with customers.

As of December 31, 2019, Rail Russia owned 380 railcars.

Maintenance

As of December 31, 2019, GRE operates a maintenance facility in Ostróda, Poland. In 2018, GRE closed its railcar maintenance facility in Hannover, Germany. The maintenance facility in Ostróda, Poland performs significant repairs, regulatory compliance and modernization work for owned railcars, and assembles railcars. This service center is supplemented by a number of third-party repair facilities. The third party facilities accounted for approximately 65% of GRE's fleet repair costs in 2019.

Similar to our Rail North America segment, GRE's customers periodically require maintenance services that are not included in the full-service lease agreement. These services are generally related to the repair of railcar damage caused by customers and railways. Revenue earned from these maintenance activities is recorded in other revenue.

In India, all railcar maintenance is performed by Indian Railways or third-parties authorized by Indian Railways, in accordance with regulatory requirements.

In Russia, all railcar maintenance is performed by third-party repair facilities either owned or authorized by Russian Railways, in accordance with regulatory requirements.


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PORTFOLIO MANAGEMENT

Portfolio Management is composed primarily of our ownership in a group of joint ventures with Rolls-Royce plc that lease aircraft spare engines, as well as five liquefied gas-carrying vessels (the "Specialized Gas Vessels"), previously referred to as the Norgas Vessels. As noted in prior years, in 2015, we made the decision to exit the majority of Portfolio Management's marine investments, excluding the Specialized Gas Vessels. The marine investments that were sold included six chemical parcel tankers, a number of inland marine vessels, and our interest in a joint venture. These specific investments were all sold as of December 31, 2017. See the Portfolio Management section in Part II, Item 7 of this Form 10-K for further details.

pminvestmentportfolio.jpg
Affiliates

The Rolls-Royce & Partners Finance joint ventures (collectively the “RRPF affiliates”) are a group of 50% owned domestic and foreign joint ventures with Rolls-Royce plc (or affiliates thereof, collectively “Rolls-Royce”), a leading manufacturer of commercial aircraft jet engines. The RRPF affiliates are primarily engaged in two business activities: leasing of aircraft spare engines to a diverse group of commercial aircraft operators worldwide and leasing of aircraft spare engines to Rolls-Royce for use in their engine maintenance programs. As of December 31, 2019, the RRPF affiliates, in aggregate, owned 478 engines, of which 250 were on lease to Rolls-Royce. Aircraft engines generally have an estimated economic useful life of 18 to 25 years when new and, depending on actual hours of usage and with proper maintenance, may achieve extended service well beyond the useful life estimates. As of December 31, 2019, the average age of these engines was approximately 11 years. Lease terms vary but typically range from 3 to 12 years. Rolls-Royce acts as manager for each of the RRPF affiliates and also performs substantially all maintenance activities.

Owned and Managed Assets

As of December 31, 2019, Portfolio Management's owned assets consisted primarily of the Specialized Gas Vessels. During the second quarter of 2019, the prior pooling arrangement with Norgas Carriers Private Limited was terminated, and we entered into a new agreement with Anthony Veder Group B.V. ("Veder") to commercially manage these vessels. Veder, based in the Netherlands, owns and operates a fleet of specialized gas-carrying vessels under contracts and charters with customers in the oil and gas industry. The Specialized Gas Vessels engage in the transport of pressurized gases and chemicals, such as liquefied petroleum gas, liquefied natural gas, and ethylene for major oil and chemical customers worldwide.

Portfolio Management also manages portfolios of assets for third parties which generate fee and residual sharing income through portfolio administration and the remarketing of these assets. As of December 31, 2019, Portfolio Management's managed activities consisted primarily of managing leases of two power generating assets.


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ASC

ASC operates the largest fleet of U.S.-flagged vessels on the Great Lakes, providing waterborne transportation of dry bulk commodities such as iron ore, coal, limestone aggregates, and metallurgical limestone. End markets served include steel making, domestic automobile manufacturing, electricity generation, and non-residential construction. Safe operations and customer service, primarily in the form of scheduling flexibility, vessel availability, and reliability, are keys to ASC’s success. ASC’s sailing season generally runs from April 1 through December 31; however, depending on customer demand and weather conditions, vessels may commence operations in March and continue to operate into January of the following year.

In 2019, one of ASC's vessels was heavily damaged by fire during winter maintenance. As a result, the vessel was removed from service and written off. Refer to the ASC section in Part II, Item 7 of this Form 10-K for additional information. At December 31, 2019, ASC’s fleet consisted of 11 vessels with a net book value of $249.6 million. All vessels are compliant with applicable regulatory guidelines. The vessels are diesel powered, with an average age of 42 years and estimated useful lives of 65 years. For 2020, 10 of ASC’s vessels are generally available for both service contracts and spot business; the remaining vessel is dedicated to a time charter agreement that is scheduled to expire following the 2021 sailing season. ASC’s vessels operate exclusively in the fresh water of the Great Lakes and as a result, with proper maintenance and periodic refurbishment, may achieve extended service well beyond the useful life estimates.
ascindustriesa03.jpgasccomodities.jpg
All of ASC’s vessels are equipped with self-unloading equipment, enabling them to discharge dry bulk cargo without shore-side assistance. This equipment enables the vessels to operate 24 hours a day, seven days a week. ASC’s vessels are capable of transporting and unloading almost any free flowing, dry bulk commodity. In 2019, ASC served 22 customers, with the top five customers accounting for approximately 85% of total revenue.

The following table sets forth ASC's fleet as of December 31, 2019:
Great Lakes Vessels
 
Length (feet)
 
Capacity (gross tons)
M/V American Spirit
 
1004'
 
62,400
M/V Burns Harbor
 
1000'
 
80,900
M/V Indiana Harbor
 
1000'
 
80,900
M/V Walter J. McCarthy, Jr
 
1000'
 
80,900
M/V American Century
 
1000'
 
78,850
M/V American Integrity
 
1000'
 
78,850
M/V American Mariner
 
730'
 
37,300
M/V H. Lee White
 
704'
 
35,400
M/V John J. Boland
 
680'
 
34,000
M/V Sam Laud
 
634'-10"
 
24,300
M/V American Courage
 
634'-10"
 
23,800

ASC’s vessels operate pursuant to customer contracts that stipulate freight volume commitments and may also be supplemented with additional spot volume opportunities. In 2019, ASC operated 11 vessels and carried 27.0 million net tons of cargo. The number of vessels deployed by ASC in any given year is dependent on customer requirements.


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ASC’s primary competitors on the Great Lakes are Interlake Steamship Company, Great Lakes Fleet, Inc., Grand River Navigation, Central Marine Logistics, and VanEnkevort Tug and Barge. ASC principally competes on the basis of service capabilities, customer relationships, and price.

The United States shipping industry is subject to the Jones Act, which requires all commercial vessels transporting goods between U.S. ports to be built, owned, operated and manned by U.S. citizens, and registered under the U.S. flag.

On February 7, 2020, we entered into an agreement to sell ASC. The sale is subject to customary closing conditions. See "Note 25. Subsequent Events" in Part II, Item 8 of this Form 10-K for additional information.


TRADEMARKS AND PATENTS

Patents, trademarks, and licenses are not material to our businesses taken as a whole.

SEASONAL NATURE OF BUSINESS

ASC’s fleet is inactive for a significant portion of the first quarter of each year due to the winter conditions on the Great Lakes.

CUSTOMER BASE

GATX, taken as a whole, is not dependent upon a single customer nor does it have any significant customer concentrations. Segment concentrations, if material, are described above.

See "Note 13. Concentrations" in Part II, Item 8 of this Form 10-K for additional information.

EMPLOYEES AND EMPLOYEE RELATIONS

As of December 31, 2019, we employed 2,165 persons, of whom approximately 42% were union workers covered by collective bargaining agreements.

See "Note 13. Concentrations" in Part II, Item 8 of this Form 10-K for additional information about our employees and concentration of labor force.

ENVIRONMENTAL MATTERS

Our operations, facilities and properties are subject to extensive federal, state, local, and foreign environmental laws and regulations. These laws cover discharges to waters; air emissions; toxic substances; the generation, handling, storage, transportation, and disposal of waste and hazardous materials; and the investigation and remediation of contamination. These laws have the effect of increasing the cost and liability associated with leasing and operating assets, and violations can result in significant fines, penalties, or other liabilities. Environmental risks and compliance with applicable environmental laws and regulations are inherent in rail and marine operations, which frequently involve transporting chemicals and other hazardous materials.

We are subject to, and may from time to time continue to be subject to, environmental cleanup and enforcement actions in the United States and in the foreign countries in which we operate. In particular, the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the Superfund law, generally imposes joint and several liability for investigation, cleanup and enforcement costs on current and former owners and operators of a site, without regard to fault or the legality of the original conduct. Accordingly, we have been and may, in the future, be named as a potentially responsible party under CERCLA and other federal, state, local, and foreign laws or regulations for all or a portion of the costs to investigate and clean up sites at which certain contaminants may have been discharged or released by us, our current lessees, former owners or lessees of properties, or other third parties. Environmental remediation and other environmental costs are accrued when considered probable and amounts can be reasonably estimated. As of December 31, 2019, environmental costs were not material to our financial position, results of operations or cash flows. For further discussion, see "Note 22. Legal Proceedings and Other Contingencies" in Part II, Item 8 of this Form 10-K.


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INFORMATION ABOUT OUR EXECUTIVE OFFICERS

The following information regarding our executive officers is included in Part I in lieu of inclusion in our definitive Proxy Statement:
 
 
Name
 
 
Offices Held
Position Held Since
 
Age
Brian A. Kenney
Chairman, President and Chief Executive Officer
2005
 
60
Thomas A. Ellman
Executive Vice President and Chief Financial Officer
2018
 
51
James M. Conniff
Executive Vice President and Chief Human Resources Officer
2018
 
62
Deborah A. Golden
Executive Vice President, General Counsel and Corporate Secretary
2012
 
65
Robert C. Lyons
Executive Vice President and President, Rail North America
2018
 
56
N. Gokce Tezel
Executive Vice President and President, Rail International
2018
 
45
Niyi A. Adedoyin
Senior Vice President and Chief Information Officer
2016
 
52
Eric D. Harkness
Senior Vice President, Treasurer and Chief Risk Officer
2018
 
47
Jennifer M. McManus
Senior Vice President, Controller and Chief Accounting Officer
2020
 
40
Amita Shetty
Senior Vice President, Business Development
2018
 
43
Paul F. Titterton
Senior Vice President and Chief Operating Officer, Rail North America
2018
 
44
Jeffery R. Young
Senior Vice President and Chief Tax Officer
2018
 
57
Robert A. Zmudka
Senior Vice President and Chief Commercial Officer, Rail North America
2018
 
52

Mr. Kenney has served as Chairman, President and Chief Executive Officer since 2005. Previously, Mr. Kenney served as President from 2004 to 2005, Senior Vice President, Finance and Chief Financial Officer from 2002 to 2004, Vice President, Finance and Chief Financial Officer from 1999 to 2002, Vice President, Finance from 1998 to 1999, Vice President and Treasurer from 1997 to 1998, and Treasurer from 1995 to 1996.

Mr. Ellman was elected Executive Vice President and Chief Financial Officer in August, 2018. Previously, Mr. Ellman served as Executive Vice President and President, Rail North America from 2013 to August 2018, Senior Vice President and Chief Commercial Officer from 2011 to 2013, and Vice President and Chief Commercial Officer from 2006 to 2011. Prior to re-joining GATX in 2006, Mr. Ellman served as Senior Vice President and Chief Risk Officer and Senior Vice President, Asset Management of GE Equipment Services, Railcar Services and held various positions at GATX in the GATX Rail Finance Group.

Mr. Conniff was elected Executive Vice President and Chief Human Resources Officer in August 2018. Previously, Mr. Conniff served as Senior Vice President, Human Resources from 2014 to August 2018, Vice President, Human Resources in 2014, and Senior Director, Benefits and Employee Services from 2008 to 2014. Mr. Conniff joined GATX in 1981 and has held a variety of positions in finance and human resources.

Ms. Golden has served as Executive Vice President, General Counsel and Corporate Secretary since June 2012. Previously, Ms. Golden served as Senior Vice President, General Counsel and Corporate Secretary from 2007 to June 2012. Ms. Golden joined GATX in 2006 as Vice President, General Counsel and Corporate Secretary. Prior to joining GATX, Ms. Golden served as Vice President and General Counsel of Midwest Generation, LLC from 2004 to 2005, Deputy General Counsel, State of Illinois, Office of the Governor from 2003 to 2004 and Assistant General Counsel with Ameritech Corporation/SBC Communications, Inc. from 1997 to 2001.

Mr. Lyons was elected Executive Vice President and President, Rail North America in August 2018. Previously, Mr. Lyons served as Executive Vice President and Chief Financial Officer from 2012 to August 2018, Senior Vice President and Chief Financial Officer from 2007 to 2012, Vice President and Chief Financial Officer from 2004 to 2007, Vice President, Investor Relations from 2000 to 2004, Project Manager, Corporate Finance from 1998 to 2000, and Director of Investor Relations from 1996 to 1998.

Mr. Tezel was elected Executive Vice President and President, Rail International in August 2018, Previously, Mr. Tezel served as Senior Vice President and President, Rail International from March 2018 to August 2018, Vice President and Senior Vice President - Business Development, Rail International from 2015 to March 2018, Vice President and Group Executive, Emerging Markets from 2012 to 2015, Vice President - International Business Development 2008 to 2012, Vice President - Strategic Growth from 2007 to 2008, Director, Marketing and Product Development from 2005 to 2007, Director, Corporate Finance from 2003 to 2005, and Associate Director, Corporate Finance from 2000 to 2003.

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Mr. Adedoyin has served as Senior Vice President and Chief Information Officer since January 2016. Previously, Mr. Adedoyin served as Vice President and Chief Information Officer from 2013 to January 2016 and Senior Director, IT Strategy and Project Management Office from 2008 to 2013.

Mr. Harkness was elected Senior Vice President, Treasurer, and Chief Risk Officer in August 2018. Previously, Mr. Harkness served as Vice President, Treasurer and Chief Risk Officer from 2012 to August 2018, Vice President, Chief Risk Officer from 2010 to 2012, and Senior Investment Risk Officer from 2007 to 2010. Prior to joining GATX, Mr. Harkness served in a variety of positions of increasing responsibility in the financial services industry.

Ms. McManus was elected Senior Vice President, Controller and Chief Accounting Officer effective January 1, 2020. Previously Ms. McManus served as Senior Director, Investor Relations and Accounting Research, Policy & Planning since May 2017 and Director, Accounting Research, Policy & Planning from June 2015 to May 2017. Prior to joining GATX, Ms. McManus held various positions of increasing responsibility with Hyatt Hotels Corporation, including Strategic Process Design & Implementation Senior Manager from 2012 to May 2015.

Ms. Shetty was elected Senior Vice President, Business Development in August 2018. Previously, Ms. Shetty served as Vice President and Executive Director, Strategy from 2016 to August 2018, Vice President, Marketing & Customer Experience from 2014 to 2016, and Senior Director, Customer Experience from 2013 to 2014. Prior to joining GATX, Ms. Shetty spent more than ten years at various divisions of General Electric, including GE Capital Railcar Services.

Mr. Titterton was elected Senior Vice President and Chief Operating Officer, Rail North America in August 2018. Previously, Mr. Titterton served as Senior Vice President and Chief Commercial Officer, Rail North America from 2015 to August 2018, Vice President and Chief Commercial Officer from 2013 to 2015, Vice President and Group Executive, Fleet Management, Marketing and Government Affairs from 2011 to 2013, Vice President and Executive Director, Fleet Management from 2008 to 2011, and in a variety of increasingly responsible positions since joining the company in 1997.

Mr. Young was elected Senior Vice President and Chief Tax Officer in August 2018. Previously, Mr. Young served as Vice President and Chief Tax Officer from 2015 to August 2018, Vice President of Tax from 2007 to 2015, and as Director of Tax from 2003 to 2007. Prior to joining GATX, Mr. Young spent twenty years in a variety of increasingly responsible tax related positions in public accounting and the financial services industry.

Mr. Zmudka was elected Senior Vice President and Chief Commercial Officer, Rail North America in August 2018. Previously, Mr. Zmudka served as Vice President and Group Executive, North American Sales & Marketing from 2010 to August 2018, Vice President and Executive Director, Strategic Sales from 2007 to 2010, and Vice President, National Accounts from 2006 to 2007. Mr. Zmudka joined GATX in 1989 and worked in various sales and fleet portfolio roles before being promoted to Vice President, Regional Sales in 2001.

AVAILABLE INFORMATION

We make available free of charge at our website, www.gatx.com, our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (“SEC”). The SEC maintains a website that contains reports, proxy, and other information that we have filed with the SEC. The SEC website may be found at http://www.sec.gov. Charters for the Audit Committee, Compensation Committee and Governance Committee of the Board of Directors, the Corporate Governance Guidelines, the Code of Business Conduct and Ethics and the Code of Ethics for Senior Company Officers are posted under Corporate Governance in the Investor Relations section of our website, and are available in print upon request by any shareholder. Within the time period prescribed by SEC and New York Stock Exchange regulations, we will post on our website any amendment to the Code of Ethics for Senior Company Officers and the Code of Business Conduct and Ethics or any waivers thereof. The information on our website is not incorporated by reference into this report.


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Item 1A.  Risk Factors

Investors should consider the risk factors described below as well as other information contained in this filing or our other filings with the U.S. Securities and Exchange Commission before investing in our securities. If any of the events described in the risk factors below occur, our business, financial condition and results of operations could be materially adversely affected.

We have been, and may continue to be, involved in various types of litigation, including claims for personal injury, property damage, environmental damage, and other claims arising from an accident involving our railcars or other assets.

The nature of our business and assets potentially exposes us to significant personal injury and property damage claims and litigation, environmental claims, or other types of lawsuits inside and outside the U.S. For example, some of our customers use certain types of our rail assets to transport flammable liquids and other hazardous materials, and an accident involving such rail assets could lead to litigation and subject us to significant liability. Similarly, if we fail to meet our obligations to maintain our assets in compliance with governmental regulations and industry rules, we could be subject to fines, penalties, and claims for such failure as well as any resulting personal injury or property damage. In some jurisdictions, an accident can give rise to both civil and criminal liabilities for us and, in some cases, our employees. In the event of an unfavorable outcome, we could be subject to substantial penalties or monetary damages, including criminal penalties and fines, and our employees who are named as criminal defendants in any such litigation may be subject to incarceration and fines. A substantial adverse judgment against us could have a material effect on our financial position, results of operations, cash flows, and reputation.

We depend on continued demand from our customers to lease or use our transportation assets and services at satisfactory rates. A significant decline in customer demand could negatively impact our business and financial performance.

Our profitability depends on our ability to lease assets at satisfactory rates and to re-lease assets upon lease expiration. Customer demand for our transportation assets and services can be adversely affected by various economic and other factors, including:
Weak macroeconomic conditions
Weak market conditions in our customers’ businesses
Declines in harvest or production volumes
Adverse changes in the price of, or demand for, commodities
Changes in railroad operations and efficiency
Changes in railroad pricing and service offerings, including those related to "precision scheduled railroading"
Changes in supply chains
Availability of pipelines, trucks, and other alternative modes of transportation
Conditions on the Great Lakes
Changes in conditions affecting the aviation industry, including geographic exposure and customer concentrations
Other operational or commercial needs or decisions of our customers
World trade policies

Demand for our railcars and other assets is dependent on the strength and growth of our customers' businesses. Some of our customers operate in cyclical markets, such as the steel, energy, chemical, transportation, and construction industries, which are susceptible to macroeconomic downturns and may experience significant changes in demand over time. Weakness in certain sectors of the economy in the United States and other parts of the world may make it more difficult for us to lease certain types of transportation assets that are either returned at the end of a lease term or returned as a result of a customer bankruptcy or default.

Adverse changes in commodity prices or reduced demand for commodities could reduce customer demand for various types of assets in our fleet. A significant decrease in the price of a commodity may cause producers of that commodity to reduce their production levels. A significant increase in the price of a commodity could cause our customers to switch to less expensive transport alternatives. In either case, these changes in customer behavior can reduce demand for the portions of our fleet that are used to transport the commodity. In addition, demand for rail assets used to transport ethanol and other renewable fuels may be affected by government subsidies and mandates, which may be enacted, changed, or eliminated from time to time.

The availability and relative cost of alternative modes of transportation and changes in customer transportation preferences also could reduce demand for our rail assets. For example, technological innovations in the trucking industry and patterns in U.S. economic growth that favor truck over rail could result in a modal shift away from rail and reduce customer demand for our rail assets. Demand for our marine and aircraft spare engine assets and related services is also influenced by many of the factors discussed above. For example, aircraft spare engine leasing is influenced by airline and lessee profitability, reliability and durability of engine types, world trade policies, technological advances, and price and other competitive factors. A significant decline in customer demand for our assets and services could adversely affect our financial performance.

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In many cases, demand for our assets also depends on our customers’ desire to lease, rather than buy, the assets. Tax and accounting considerations, interest rates, and operational flexibility, among other factors, may influence a customer’s decision to lease or buy assets. We have no control over these external considerations, and changes in these factors, including recent changes to lease accounting rules and the Tax Cuts and Jobs Act, could negatively impact demand for our assets held for lease.

A significant change in pricing and/or service offerings by North American railroads or poor operating conditions could reduce demand for our rail assets and negatively impact financial performance.

Our North American rail asset leasing business is impacted by the operations of the railroads, particularly the eight largest rail systems known as the "Class I railroads", most of which are pursuing some form of major operational transformation under the umbrella term of "precision scheduled railroading" or "PSR". If PSR results in substantial increases in train velocity or decreases in dwell time for rail assets, the resulting excess supply of railcars and/or locomotives may adversely impact the demand for our rail assets. Alternatively, if PSR results in increased pricing and/or reduced service frequency and quality, the value proposition of rail freight for shippers relative to alternative modes of transportation could be reduced. Apart from PSR, other factors such as adverse weather conditions, railroad mergers, and increases in rail traffic could result in slower transit times making rail transportation less attractive to shippers versus other modes of transport. Each of these cases could reduce demand for our rail assets and decreased fleet utilization due to modal shift away from rail, all of which could negatively impact revenue and our results of operations.

A significant decrease in lease renewals of our transportation assets by our customers or a significant increase in the number of compliance-based maintenance events could negatively impact operations and substantially increase our costs.

Decreases in customer demand for our transportation assets could increase the number of leases that are not renewed upon expiration, resulting in the return of such assets by our customers. Returned transportation assets often must undergo maintenance and service work before being leased to new customers. A significant increase in the number of leased assets requiring maintenance may negatively affect our operations and substantially increase maintenance and other related costs.

We also perform a variety of government or industry-mandated maintenance programs on our fleet. These compliance programs are cyclical in nature, and as a result, we can face significant increases in the number of maintenance events in any given year. A significant increase in maintenance or severe constraints in the repair networks may negatively impact our operations and substantially increase maintenance and other related costs. In addition, while we rely on third party maintenance providers to assist with these compliance procedures for our transportation assets, high demand faced by these providers from other asset owners may constrain our access to the providers or may substantially increase our costs.

Events that negatively affect certain assets, customers, or geographic regions could have a negative impact on our results of operations.

We generally derive our revenues from a variety of asset types, customers, industries, and geographic locations. However, from time to time we could have a large investment in a particular asset type, a large revenue stream associated with a particular customer or industry, or a large number of customers located in a particular geographic region. Decreased demand from a discrete event impacting a specific asset type, customer, industry, or region in which we have a concentrated exposure could negatively impact our results of operations.

Our long-term railcar purchase commitments could subject us to material operational and financial risks.

Unlike some of our competitors in the railcar leasing market, we do not manufacture railcars. In order to obtain committed access to a supply of newly built railcars on competitive terms, we regularly enter into long-term supply agreements with manufacturers to purchase significant numbers of newly built railcars over a multi-year period. Some of these agreements may provide for flexibility in the pricing, timing, and quantity of our purchasing commitments, while other agreements may provide no such flexibility. Therefore, if economic conditions weaken during the term of a long-term supply agreement, it is possible that we may be required to continue to accept delivery of, and pay for, new railcars at times when it may be difficult for us to lease such railcars and our financing costs may be high, which could negatively affect our revenues and profitability. In addition, if tariffs, trade disputes, commodity prices, or other factors lead to higher prices for steel or other raw materials used to manufacture railcars, we may be required to pay higher prices to purchase new railcars, which could adversely affect our ability to profitably lease those railcars to customers.

Soft market conditions and declines in asset values may reduce opportunities for us to generate remarketing income.

We utilize our extensive knowledge and experience to remarket transportation assets in order to optimize the composition of our fleets, and these activities generate income that contributes significantly to segment profit.  Reduced demand for our assets due to adverse market conditions could reduce opportunities for us to generate remarketing income. A significant or prolonged decline in the secondary market for our assets could adversely affect our financial performance.

12


We may not be able to successfully consummate and manage ongoing acquisition and divestiture activities, which could have an adverse impact on our financial statements.

From time to time, we may acquire other businesses and, based on an evaluation of our business portfolio, divest existing businesses. These acquisitions and divestitures may present financial, managerial, and operational challenges, including diversion of management attention from existing businesses, difficulty with integrating or separating personnel and financial and other systems, increased expenses and costs, assumption of liabilities and indemnities, and potential disputes with the buyers or sellers or third parties. In addition, we may be required to incur asset impairment charges (including charges related to goodwill and other intangible assets) in connection with acquired businesses which may reduce our profitability. If we are unable to consummate such transactions, we will not receive the expected benefits, and alternative favorable opportunities to divest may not be available to us. If we cannot successfully integrate and grow acquisitions and achieve contemplated revenue synergies and cost savings, or are unable to complete a divestiture, our financial results could be adversely affected.

We have significant financial exposure related to the performance of our aircraft engine leasing affiliate investments.

GATX and Rolls-Royce plc. each own 50% of domestic and foreign joint venture entities (collectively, the “RRPF affiliates”) that own and lease aircraft spare engines to Rolls-Royce plc. and owners and operators of commercial aircraft. Rolls-Royce plc. is a major customer of the RRPF affiliates, as well as a critical supplier of aircraft spare engines and commercial, technical, and maintenance services to the RRPF affiliates. A deterioration in (1) the performance of such services by Rolls-Royce plc., (2) the durability and reliability of Rolls-Royce, plc. engines, or (3) the creditworthiness of Rolls-Royce plc., could negatively impact the financial performance of the RRPF affiliates.

In addition, as a 50% partner in the RRPF affiliates, we may not have control over operational matters, which could result in actions that have an adverse financial impact on the RRPF affiliates, and could expose us to potential liability. The RRPF affiliates contribute significantly to our financial results. If the financial or operating performance of the RRPF affiliates deteriorates, our results of operations and cash flows could be negatively affected.

Fluctuations in foreign exchange rates and interest rates could negatively impact our results of operations.

Upon consolidation, we translate the financial results of certain subsidiaries from their local currency to the U.S. dollar, which exposes us to foreign exchange rate fluctuations. As exchange rates vary, the translated operating results of foreign subsidiaries may differ materially from period to period. We also have gains and losses on foreign currency transactions, which could vary based on fluctuations in exchange rates and the timing of the transactions and their settlement. In addition, fluctuations in foreign exchange rates can affect the demand and price for services we provide both domestically and internationally, and could negatively impact our results of operations. We also face risks associated with fluctuations in interest rates. We may seek to limit our exposure to foreign exchange rate and interest rate risk with currency or interest rate derivatives, which may or may not be effective. A material and unexpected change in interest rates or foreign exchange rates could negatively affect our financial performance.

Many of our employees are represented by unions, and failure to successfully negotiate collective bargaining agreements may result in strikes, work stoppages, or substantially higher labor costs.

A significant portion of our employees are represented by labor unions and work under collective bargaining agreements that cover a range of workplace matters, such as wages, health and welfare benefits, and work rules. If we fail to negotiate acceptable labor agreements, our business could be disrupted by strikes or lockouts. We could also incur increased operating costs due to higher wages or benefits paid to union workers. Business disruptions or higher operating costs could both have an adverse effect on our financial position, results of operations, or cash flows.

We may incur future asset impairment charges.

We review long-lived assets and joint venture investments for impairment annually, or when circumstances indicate the carrying value of an asset or investment may not be recoverable. Among other circumstances, the following may change our estimates of the cash flows we expect our long-lived assets or joint venture investments will generate, which could require us to recognize asset impairment charges:
A weak economic environment or challenging market conditions
New laws, rules or regulations affecting our assets, or changes to existing laws, rules or regulations
Events related to particular customers or asset types
Asset or portfolio sale decisions by management.


13


Deterioration of conditions in the global capital markets or negative changes in our credit ratings may limit our ability to obtain financing and may increase our borrowing costs.

We rely largely on banks and the capital markets to fund our operations and contractual commitments. Typical funding sources include commercial paper, bank term loans, public debt issuances, and a variety of other secured and unsecured financing structures. These markets can experience high levels of volatility and access to capital can be limited for an extended period of time. In addition to conditions in the capital markets, changes in our financial performance or credit ratings or ratings outlook, as determined by rating agencies such as Standard & Poor’s and Moody’s Investors Service, could cause us to incur increased borrowing costs or to have greater difficulty accessing public and private markets for secured and unsecured debt. If we are unable to obtain financing on acceptable terms, our other sources of funds, including available cash, bank facilities, cash flow from operations, and portfolio proceeds, may not be adequate to fund our operations and contractual commitments.

Changes in banks' inter-lending rate reporting practices or the phasing out of LIBOR after 2021 may adversely affect our financial condition, cash flows, and results of operations.

We have a significant amount of borrowing arrangements and financing structures that are based on the London Inter-Bank Offering Rate ("LIBOR"), including at our RRPF affiliates. In July 2017, the head of the United Kingdom Financial Conduct Authority announced they would not require panel banks to continue submitting quotes for LIBOR after 2021. In addition, the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of a diverse set of private and public sector entities, has recommended replacing U.S. dollar LIBOR with the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements backed by U.S. Treasury securities. At this time, it is not possible to predict whether any such changes will occur, which alternative reference rates or other reforms to LIBOR could be enacted in the United Kingdom, the United States or elsewhere, or the effect that any such changes, alternative reference rates or other reforms, if they occur, would have on the amount of interest paid on, or the market value of, our current or future debt obligations. Uncertainty as to the nature of such potential changes, alternative reference rates, or other reforms may adversely affect our financial condition, cash flows, and results of operations.

Competition could result in decreased profitability.

We operate in a highly competitive business environment. In certain cases, our competitors are larger than we are and have greater financial resources, higher credit ratings, and a lower cost of capital. These factors may enable our competitors to offer leases or services to customers at lower rates than we can provide, thus negatively impacting our profitability, asset utilization, and investment volume.

Risks related to our international operations and expansion into new geographic markets could adversely affect our business, financial condition, and operating results.

We generate a significant amount of our net income outside the United States. In recent years, we have increased our focus on international growth and expansion into select emerging markets as a means to grow and diversify earnings.


14


Our foreign operations and international expansion strategy are subject to the following risks associated with international operations:
Noncompliance with U.S. laws affecting operations outside of the United States, such as the Foreign Corrupt Practices Act
Noncompliance with a variety of foreign laws and regulations
Failure to properly implement changes in tax laws and the interpretation of those laws
Failure to develop and maintain data management practices that comply with laws related to cybersecurity, privacy, data localization, and data protection
Fluctuations in currency values
Sudden changes in foreign currency exchange controls
Discriminatory or conflicting fiscal policies
Difficulties enforcing contractual rights or foreclosing to obtain the return of our assets in certain jurisdictions
Inability to access railcar supply
Uncollectible accounts and longer collection cycles that may be more prevalent in foreign countries
Ineffective or delayed implementation of appropriate controls, policies, and processes across our diverse operations and employee base
Imposition of sanctions against countries where we operate or specific companies or individuals with whom we do business
Nationalization or confiscation of assets by foreign governments, and imposition of additional or new tariffs, quotas, trade barriers, and similar restrictions on our operations outside the United States
Unforeseen developments and conditions, including terrorism, war, epidemics, and international tensions and conflicts.

Our transportation assets and operations are subject to various laws, rules, and regulations. If these laws, rules, and regulations change or we fail to comply with them, it could have a significant negative effect on our business and profitability.

Our fleets of transportation assets and related operations are subject to various U.S. and non-U.S. laws, rules, and regulations administered by authorities in jurisdictions where we do business. Such laws, rules, and regulations could be changed in ways that would require us to modify our business models and objectives, impose requirements for additional maintenance or substantial modification or refurbishment of our assets, or otherwise affect our returns on investments by restricting existing activities and products, subjecting them to escalating costs or prohibiting them outright. Violations of these laws, rules, and regulations can result in substantial fines and penalties, including potential limitations on operations or forfeiture of assets.

We may not be able to obtain cost-effective insurance.

We manage our exposure to risk, in part, by purchasing insurance. There is no guarantee that cost-effective insurance will consistently be available. If insurance coverage becomes prohibitively expensive or unavailable, we could be forced to reduce our coverage amount and increase the amount of self-insured risk we retain, thereby increasing our exposure to uninsured adverse judgments and other losses and liabilities that could have a material effect on our financial position, results of operations, and cash flows.

We are subject to extensive environmental regulations and the costs of remediation may be material.

We are subject to extensive federal, foreign, state, and local environmental laws and regulations concerning, among other things, the discharge of hazardous materials and remediation of contaminated sites. In addition, some of our properties, including those previously owned or leased, have been used for industrial purposes, which may have resulted in discharges onto these properties. Environmental liability can extend to previously owned or operated properties in addition to properties we currently own or use. Additionally, we could incur substantial costs, including cleanup costs, fines, and costs arising out of third-party claims for property or natural resource damage and personal injury as a result of violations of or liabilities under environmental laws and regulations in connection with our or our lessees’ current or historical operations. Under some environmental laws in the United States and certain other countries, the owner of a leased asset may be liable for environmental damage, cleanup or other costs in the event of a spill or discharge of material from such asset without regard to the owner's fault. Governments or regulators may change the legislative or regulatory frameworks within which we operate, including environmental laws and regulations, without providing us any recourse to address any adverse effects such changes may have on our business. Due to the regulatory complexities, risk of unidentified contaminants on our properties, and the potential liability for our operations as well as those of our lessees, it is possible environmental and remediation costs may be materially different from the costs we have estimated.


15


There can be no assurance that we will continue to pay dividends or repurchase shares of our common stock at current levels.

The timing, amount and payment of future dividends to shareholders and repurchases of our common stock fall within the discretion of our Board of Directors (the "Board"). The Board’s decisions regarding the payment of dividends and repurchase of shares depend on many factors such as our financial condition, earnings, capital requirements, debt service obligations, legal requirements, regulatory constraints, and other factors that our Board may deem relevant. We cannot guarantee that we will continue to pay dividends or repurchase shares in the future, and our payment of dividends and repurchase of shares could vary from historical practices and our stated expectations.

The fair market value of our long-lived assets may differ from the value of those assets reflected in our financial statements.

Our assets primarily consist of long-lived transportation assets such as rail assets, aircraft spare engines, and marine vessels. The carrying value of these assets on our financial statements may sometimes differ from their fair market value. These valuation differences may be positive or negative and could be material based on market conditions and demand for certain assets.

Our assets may become obsolete.

In addition to changes in laws, rules, and regulations that may make transportation assets obsolete, changes in the preferred method our customers use to ship their products, changes in demand for particular products, or a shift by customers toward purchasing assets rather than leasing them may adversely impact us. Our customers' industries are driven by dynamic market forces and trends, which are influenced by economic and political factors. Changes in our customers' markets may significantly affect demand for our rail, aircraft spare engine, and marine assets.

Unfavorable conditions on the Great Lakes could impact business operations of our American Steamship Company ("ASC") subsidiary, which could result in increases in costs and decreases in revenues.

The success of our ASC subsidiary depends on the efficiency of its marine operations on the Great Lakes. Disruptions at the Sault St. Marie locks or severe weather conditions, such as high wind and ice formation, could cause significant business interruptions or shortened sailing seasons. Additionally, low water levels and vessel draft restrictions may restrict the volume that ASC's vessels can transport per trip. These conditions could negatively impact our results of operations through increased operating costs or decreased revenues.

We may be affected by climate change or market or regulatory responses to climate change.

There is increasing global regulatory focus on climate change and greenhouse gas (“GHG”) emissions. Climate change may also pose regulatory and environmental risks that could harm our results of operations and affect the way we conduct business. Severe weather, climate change, and natural disasters, such as tornadoes, flooding and earthquakes, could cause significant business interruptions and result in increased costs and liabilities and decreased revenues. Changes in laws, rules, and regulations, or actions by authorities or other third parties under existing laws, rules, or regulations, to address GHG and climate change could negatively impact our customers and business. For example, restrictions on GHG emissions could significantly increase costs for our customers whose production processes require significant amounts of energy, which could reduce demand for the lease of our assets, while rail assets in our fleet that are used to carry fossil fuels, such as coal and petroleum, could see reduced demand if government regulations mandate a reduction in fossil fuel consumption or customer preferences change. New government regulations could also increase our operating costs and compliance with those regulations could be costly. Any of these factors, individually or in operation with one or more of the other factors, or other unforeseen impacts of climate change, could reduce the demand for our assets and could have an adverse effect on our financial position, results of operations, and cash flows.

A small number of shareholders could significantly influence our business.

Six shareholders collectively control more than 60% of our outstanding common stock. Accordingly, a small number of shareholders could affect matters that require shareholder approval, such as the election of directors and the approval of significant business transactions.

16


Changes to assumptions used to calculate post-retirement costs, increases in funding requirements, and investment losses in pension funds could adversely affect our results of operations.

We calculate our pension and other post-retirement costs using various assumptions, such as discount rates, long-term return on plan assets, salary increases, health care cost trend rates, and other factors. Changes to any of these assumptions could adversely affect our financial position and results of operations. Periods of low interest rates reduce the discount rate we use to calculate our funding obligations, which may increase our funding requirements. Additionally, changes to laws, regulations, or rules could require us to increase funding requirements or to compensate for investment losses in pension plan assets. If we were forced to increase contributions to our pension plans, our financial position, results of operations, and cash flows could be negatively affected.

Changes in the mix of earnings in the U.S. and foreign countries could adversely affect our effective tax rate.

We are subject to taxes in the United States and various foreign jurisdictions. As a result, our effective tax rate could be adversely affected by changes in the mix of earnings in the United States and foreign countries with differing statutory tax rates. Our effective tax rate could also be adversely affected by changes in tax laws, material audit assessments, or legislative changes that impact statutory tax rates, which could include an impact on previously-recorded deferred tax assets and liabilities.

Our allowance for losses may be inadequate.

Our allowance for losses on reservable assets may not be adequate to cover credit losses in our portfolio if unexpected adverse changes occur in macroeconomic conditions or if discrete events adversely affect specific customers, industries, or markets. If the credit quality of our customer base materially deteriorates, it may require us to incur additional credit losses and our financial position or results of operations could be negatively impacted.

Inflation or deflation could have an unanticipated adverse impact on our financial results.

The timing and duration of the effects of inflation are unpredictable and depend on market conditions and economic factors. Inflation in lease rates as well as inflation in residual values for rail and marine assets has historically benefited our financial results. However, these benefits may be offset by increases in the costs for goods and services we purchase, including salaries and wages, health care costs, supplies, utilities, maintenance and repair services, and materials, as well as increased financing costs. Significant increases in our cost of goods and services could adversely impact our financial performance. Conversely, a period of prolonged deflation could negatively impact our lease rate pricing, residual values, and asset remarketing opportunities. These negative impacts of deflation may be offset by decreases to our costs for goods and services, including those listed above.

We could be adversely affected by United States and global political conditions, including acts or threats of terrorism or war.

We may be adversely affected by national and international political developments, instability, and uncertainties, including political unrest and threats of terrorist attacks or war, which could lead to the following:
Legislation or regulatory action directed toward improving the security of transportation assets against acts of terrorism, which could affect the construction or operation of transportation assets and increase costs
A decrease in demand for transportation assets and services
Lower utilization of transportation equipment
Lower transportation asset lease and charter rates
Impairments and loss of transportation assets
Capital market disruption, which may raise our financing costs or limit our access to capital
Liability or losses resulting from acts of terrorism involving our assets
A significant deterioration of global growth, and related decreases in confidence or investment activity in the global markets, arising from political or economic tensions, changes, and trends and/or an increase in trade conflict and protectionism.

Depending upon the severity, scope, and duration of these circumstances, the impact on our financial position, results of operations, and cash flows could be material.


17


We rely on technology in all aspects of our business operations. If we are unable to adequately maintain and secure our information technology (“IT”) infrastructure from cybersecurity threats and related disruptions, our business could be negatively impacted.

Threats to IT systems associated with cybersecurity risks and cyber incidents or attacks have continued to increase in recent years. We rely on our IT infrastructure to process, transmit, and store electronic information that is used in all aspects of our business operations, including employee and customer information. All IT systems are vulnerable to security threats, such as hacking, viruses, malicious software, and other unlawful attempts to disrupt or gain access to these systems. The steps we have taken to mitigate these risks may not be effective to prevent breaches of our IT infrastructure, some of which is managed by third parties. Breaches of our IT infrastructure could lead to disruptions in our business, potentially including the theft, destruction, loss, misappropriation, or release of confidential employee and customer information stored on our IT systems or confidential data or other business information and subject us to potential lawsuits or other material legal liabilities. These disruptions could adversely affect our operations, financial position, and results of operations.

Our internal control over financial accounting and reporting may not detect all errors or omissions in the financial statements.

If we fail to maintain adequate internal controls over financial accounting, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. No system of internal control provides absolute assurance that the financial statements are accurate and free of material error.

Item 1B.  Unresolved Staff Comments

None.


18


Item 2.  Properties

Information regarding the general character of our properties is included in Item 1, “Business” of this Form 10-K.

As of December 31, 2019, the locations of our operations were as follows:
 
GATX Headquarters
 
 
 
 
 
Chicago, Illinois
 
 
 
 
Rail North America
 
 
 
Business Offices
Major Maintenance Facilities
Mobile Units
Chicago, Illinois
Colton, California
Donaldsonville, Louisiana
Houston, Texas
Hearne, Texas
Clarkson, Ontario
Burlington, Ontario
Waycross, Georgia
Edmonton, Alberta
Calgary, Alberta
Montreal, Quebec
Montreal, Quebec
Mexico City, Mexico
Moose Jaw, Saskatchewan
Red Deer, Alberta
 
Red Deer, Alberta
 
 
 
 
 
Maintenance Facilities
 
 
Plantersville, Texas
 
 
Terre Haute, Indiana
 
 
 
 
 
Customer Site Locations
 
 
Catoosa, Oklahoma
 
 
Donaldsonville, Louisiana
 
 
Freeport, Texas
 
 
Geismar, Louisiana
 
 
Yazoo City, Mississippi
 
 
 
 
Rail International
 
 
 
Business Offices
Major Maintenance Facilities
Customer Site Locations
Amsterdam, Netherlands
Ostróda, Poland
Płock, Poland
Düsseldorf, Germany
 
 
Hamburg, Germany
 
 
Leipzig, Germany
 
 
Moscow, Russia
 
 
Gurgaon, India
 
 
Paris, France
 
 
Vienna, Austria
 
 
Warsaw, Poland
 
 
 
American Steamship Company
 
 
 
 
 
Duluth, Minnesota
 
 
Toledo, Ohio
 
 
Williamsville, New York
 
 
 
Portfolio Management
 
 
 
 
 
Chicago, Illinois
 
 
 
 

19


Item 3.  Legal Proceedings

Information concerning litigation and other contingencies is described in "Note 22. Legal Proceedings and Other Contingencies" in Part II, Item 8 of this Form 10-K and is incorporated herein by reference.

Item 4.  Mine Safety Disclosures

None.


20


PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Our common stock is listed on the New York and Chicago Stock Exchanges under ticker symbol "GATX". We had approximately 1,573 common shareholders of record as of January 31, 2020.

Issuer Purchases of Equity Securities

On January 25, 2019, our board of directors ("Board") approved a $300 million share repurchase program, pursuant to which we are authorized to purchase shares of our common stock in the open market, in privately negotiated transactions, or otherwise, including pursuant to Rule 10b5-1 plans. The share repurchase program does not have an expiration date, does not obligate the Company to repurchase any dollar amount or number of shares of common stock, and may be suspended or discontinued at any time. The timing of share repurchases will be dependent on market conditions and other factors.
During 2019, we repurchased 2.0 million shares for $150.0 million under the share repurchase program. As of December 31, 2019, $150.0 million remained available under the repurchase authorization.

The following is a summary of common stock repurchases completed by month during the fourth quarter of 2019:
Issuer Purchases of Equity Securities
 
 
(a)
 
(b)
 
(c)
 
(d)
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)
October 1, 2019 - October 31, 2019
 
258,678

 
$
75.64

 
258,678

 
$
150.5

November 1, 2019 - November 30, 2019
 
6,549

 
$
81.36

 
6,549

 
$
150.0

Total
 
265,227

 
$
75.78

 
265,227

 
 

Equity Compensation Plan Information as of December 31, 2019:
 
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
 
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in Column (a))
Plan Category
 
(a)
 
(b)
 
(c)
Equity Compensation Plans Approved by Shareholders
 
2,140,736

(1)
 
$
59.32

(2)
 
3,187,703

Equity Compensation Plans Not Approved by Shareholders
 

 
 
 
 
 

Total
 
2,140,736

 
 
 
 
 
3,187,703

__________
(1) Consists of 371,716 stock appreciation rights, 1,179,619 non-qualified stock options, 217,259 performance shares, 164,488 restricted stock units and 207,654 phantom stock units.
(2) The weighted-average exercise price does not include performance shares, restricted stock or phantom stock units.

For additional information about issuable securities under our equity compensation plans and the related weighted-average exercise price, see "Note 11. Share-Based Compensation" in Part II, Item 8 of this Form 10-K.

21


Common Stock Performance Graph

The performance graph below compares the cumulative total shareholder return on our common stock for the five-year period ended December 31, 2019, with the cumulative total return of the S&P 500 Index, the S&P MidCap 400 Index, and the Russell 3000 Index. We are not aware of any peer companies whose businesses are directly comparable to ours and, therefore, the graph displays the returns of the indices noted above as those comprise companies with market capitalizations similar to ours. The graph and table assume that $100 was invested in our common stock and each of the indices on December 31, 2014, and that all dividends were reinvested.

chart-a6035a4856c25d919d8.jpg



12/31/14
 
12/31/15
 
12/31/16
 
12/31/17
 
12/31/18
 
12/31/19
GATX
$
100.00

 
$
76.19

 
$
114.15

 
$
118.46

 
$
138.18

 
$
165.47

S&P 500
100.00

 
101.37

 
113.49

 
138.26

 
132.19

 
173.80

S&P MidCap 400
100.00

 
97.82

 
118.10

 
137.26

 
122.03

 
153.96

Russell 3000
100.00

 
100.47

 
113.26

 
137.17

 
129.98

 
170.28



22


Item 6.  Selected Financial Data

The following financial information has been derived from our audited consolidated financial statements for the years ended December 31 (in millions, except per share data, recourse leverage, and return on equity). This information should be read in conjunction with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and accompanying notes thereto included elsewhere herein.
 
2019
 
2018
 
2017
 
2016
 
2015
Results of Operations
 
 
 
 
 
 
 
 
 
Revenue
$
1,393.8

 
$
1,360.9

 
$
1,376.9

 
$
1,418.3

 
$
1,449.9

Net gain on asset dispositions
62.1

 
72.8

 
54.1

 
98.0

 
79.2

Share of affiliates’ pre-tax income
94.5

 
61.1

 
55.9

 
53.1

 
45.4

Net income (GAAP)
211.2

 
211.3

 
502.0

 
257.1

 
205.3

Net income, excluding tax adjustments and other items (non-GAAP) (1)
200.3

 
199.8

 
185.0

 
235.9

 
234.9

Per Share Data
 
 
 
 
 
 
 
 
 
Basic earnings (GAAP)
5.92

 
5.62

 
12.95

 
6.35

 
4.76

Diluted earnings (GAAP)
5.81

 
5.52

 
12.75

 
6.29

 
4.69

Diluted earnings, excluding tax adjustments and other items (non-GAAP) (1)
5.51

 
5.22

 
4.70

 
5.77

 
5.37

Dividends declared
1.84

 
1.76

 
1.68

 
1.60

 
1.52

Financial Condition
 
 
 
 
 
 
 
 
 
Operating assets and facilities, net of accumulated depreciation
$
6,707.2

 
$
6,549.5

 
$
6,192.1

 
$
5,804.7

 
$
5,698.4

Investments in affiliated companies
512.6

 
464.5

 
441.0

 
387.0

 
348.5

Total assets
8,285.1

 
7,616.7

 
7,422.4

 
7,105.4

 
6,894.2

Off-balance sheet assets (1)(2)

 
430.2

 
435.7

 
459.1

 
495.5

Short-term borrowings
15.8

 
110.8

 
4.3

 
3.8

 
7.4

Long-term debt
4,780.4

 
4,429.7

 
4,371.7

 
4,253.2

 
4,178.4

Operating lease obligations
432.3

 

 

 

 

Finance lease obligations
7.9

 
11.3

 
12.5

 
14.9

 
18.4

Off-balance sheet recourse debt (1)(2)

 
430.2

 
435.7

 
459.1

 
495.5

Shareholders’ equity (3)
1,835.1

 
1,788.1

 
1,792.7

 
1,347.2

 
1,280.2

Other Data
 
 
 
 
 
 
 
 
 
Average number of common shares and common share equivalents
36.4

 
38.3

 
39.4

 
40.9

 
43.8

Net cash provided by operating activities
$
462.6

 
$
508.5

 
$
496.8

 
$
629.4

 
$
541.8

Portfolio proceeds
$
250.3

 
$
234.4

 
$
165.6

 
$
223.7

 
$
482.2

Portfolio investments and capital additions
$
741.7

 
$
943.4

 
$
603.4

 
$
620.7

 
$
714.7

Recourse leverage (4)
2.8

 
2.7

 
2.5

 
3.3

 
3.5

Return on equity (GAAP)
11.7
%
 
11.8
%
 
32.0
%
 
19.6
%
 
15.8
%
Return on equity, excluding tax adjustments and other items (non-GAAP) (1)(5)
13.5
%
 
13.6
%
 
13.1
%
 
18.0
%
 
18.1
%
_________
(1)
See "Non-GAAP Financial Measures" included in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K for an explanation of tax adjustments and other items, as well as a reconciliation to the most directly comparable GAAP measures.
(2)
Off-balance sheet assets and off-balance sheet recourse debt, which relate to operating leases, are applicable for 2015 through 2018. In accordance with the new lease accounting standard, off-balance sheet assets and recourse debt are no longer applicable beginning in 2019.
(3)
Balances for 2019, 2018 and 2017 reflect increases in shareholders' equity resulting from the impact of the Tax Cuts and Jobs Act of 2017 ("Tax Act").
(4)
The reduction in recourse leverage beginning with 2017 is due to the increase in shareholders' equity resulting from the impact of the Tax Act.
(5)
Shareholder's equity used in this calculation for 2019, 2018 and 2017 excludes the impact of the Tax Act.

23


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

OVERVIEW

We lease, operate, manage, and remarket long-lived, widely-used assets, primarily in the rail market. We report our financial results through four primary business segments: Rail North America, Rail International, Portfolio Management, and American Steamship Company (“ASC”). On February 7, 2020, we entered into an agreement to sell ASC. See "Note 25. Subsequent Events" in Part II, Item 8 of this Form 10-K for additional information. A more complete description of our business is included in "Item 1. Business," in Part I of this Form 10-K.

The following discussion and analysis should be read in conjunction with the audited financial statements included in "Item 8. Financial Statements and Supplementary Data" in this Form 10-K. We based the discussion and analysis that follows on financial data we derived from the financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and on certain other financial data that we prepared using non-GAAP components. For a reconciliation of these non-GAAP measures to the most comparable GAAP measures, see “Non-GAAP Financial Measures” at the end of this item.

DISCUSSION OF OPERATING RESULTS

The following table shows a summary of our reporting segments and consolidated financial results for years ended December 31 (dollars in millions, except per share data):
 
2019
 
2018
 
2017
Segment Revenues
 
 
 
 
 
Rail North America
$
964.5

 
$
941.5

 
$
977.4

Rail International
227.7

 
217.5

 
197.1

Portfolio Management
9.9

 
16.1

 
29.9

ASC
191.7

 
185.8

 
172.5

 
$
1,393.8

 
$
1,360.9

 
$
1,376.9

Segment Profit
 
 
 
 
 
Rail North America
$
276.2

 
$
307.9

 
$
299.3

Rail International
78.9

 
68.6

 
68.8

Portfolio Management
62.4

 
38.7

 
56.3

ASC
46.1

 
33.0

 
24.5

 
463.6

 
448.2

 
448.9

Less:
 
 
 
 
 
Selling, general and administrative expense
188.6

 
191.1

 
180.0

Unallocated interest (income) expense
(5.8
)
 
(8.6
)
 
(8.5
)
Other, including eliminations
3.2

 
9.5

 
7.1

Income taxes ($18.0, $10.8 and $12.0 related to affiliates' earnings)
66.4

 
44.9

 
(231.7
)
Net Income (GAAP)
$
211.2

 
$
211.3

 
$
502.0

 
 
 
 
 
 
Net income, excluding tax adjustments and other items (non-GAAP)
$
200.3

 
$
199.8

 
$
185.0

Diluted earnings per share (GAAP)
$
5.81

 
$
5.52

 
$
12.75

Diluted earnings per share, excluding tax adjustments and other items (non-GAAP)
$
5.51

 
$
5.22

 
$
4.70

 
 
 
 
 
 
Return on equity (GAAP)
11.7
%
 
11.8
%
 
32.0
%
Return on equity, excluding tax adjustments and other items (non-GAAP)
13.5
%
 
13.6
%
 
13.1
%
 
 
 
 
 
 
Investment Volume
$
741.7

 
$
943.4

 
$
603.4



24


2019 Summary

Net income was $211.2 million, or $5.81 per diluted share, for 2019 compared to $211.3 million, or $5.52 per diluted share, for 2018, and $502.0 million, or $12.75 per diluted share, for 2017. Results for 2019 included a net benefit of $10.9 million from tax adjustments and other items, compared to a net benefit of $11.5 million in 2018 and a net benefit of $317.0 million in 2017 (see "Non-GAAP Financial Measures" at the end of this item for further details).
At Rail North America, segment profit was lower in 2019. The decrease was attributable to lower net gains on asset dispositions, higher maintenance expense, resulting from more tank qualifications, and lower lease revenue, partially offset by higher other revenue.
At Rail International, segment profit was higher in 2019, largely due to the absence of the railcar maintenance facility closure costs recorded in the prior year, as well as higher revenue from more railcars on lease. These positive drivers were partially offset by the negative impact of foreign exchange rates.
At Portfolio Management, segment profit increased in 2019, primarily due to higher share of affiliate income from the Rolls-Royce & Partners Finance joint ventures (collectively the "RRPF affiliates"), offset by a lower contribution from the marine operations.
At ASC, segment profit was higher in 2019, primarily related to the impact of a net casualty gain recorded in 2019 for an insurance recovery for a vessel heavily damaged by fire and written off. Favorable operating conditions and more efficient fleet performance also contributed to the positive variance.
Total investment volume was $741.7 million in 2019, compared to $943.4 million in 2018, and $603.4 million in 2017.
2020 Outlook
Given the general economic and political uncertainty we see in North America today, our outlook for Rail North America is guarded. Despite the challenging environment, a substantial portion of the new railcars to be delivered in 2020 are committed to customer leases. Our strong balance sheet also offers us flexibility to pursue secondary market acquisitions as attractive opportunities arise.
Rail North America's segment profit in 2020 is expected to decrease from 2019. Lease rates for railcars scheduled to renew in 2020 will likely be lower than expiring lease rates, and we anticipate a small decrease in fleet utilization due to a continued oversupply of railcars in the market. As a result, we project revenue in 2020 to decline compared to the prior year. We also project higher maintenance expense in 2020, primarily resulting from costs associated with transitioning cars between customers due to our expectation of a lower renewal success rate.
We anticipate Rail International's segment profit in 2020 to increase from 2019 as the demand for railcars in Europe continues to be strong. Lease revenue is expected to be higher in 2020, resulting from higher lease rates and more railcars on lease. In addition, our railcar fleet in India grew significantly in 2019, and we expect additional revenue from these railcars and additional railcar investment in 2020.
We believe Portfolio Management's segment profit in 2020 will be higher than 2019. Strong operating results at the RRPF affiliates are expected to continue. In addition, we anticipate improved financial performance from our marine operations.
We expect ASC’s segment profit in 2020 to be relatively flat compared to 2019. We anticipate slightly less volume in 2020 will be offset by favorable operating conditions and efficient fleet performance. On February 7, 2020, we entered into an agreement to sell ASC. The sale is subject to customary closing conditions. See "Note 25. Subsequent Events" in Part II, Item 8 of this Form 10-K for additional information.
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. These amounts are included in Other.


25


RAIL NORTH AMERICA

Segment Summary

The operating environment for Rail North America was challenging in 2019 as a continued market oversupply of railcars, coupled with reduced carload volume and increased railroad velocity, put pressure on lease rates throughout the year. Despite this environment, Rail North America was able to maintain high fleet utilization and renewal success. At December 31, 2019, Rail North America's wholly owned fleet, excluding boxcars, consisted of approximately 102,800 cars. Fleet utilization, excluding boxcars, was 99.3% at the end of 2019, compared to 99.4% at the end of 2018, and 98.2% at the end of 2017. Fleet utilization for approximately 15,300 boxcars was 95.0% at the end of 2019 compared to 94.2% at the end of 2018, and 92.6% at the end of 2017. Utilization is calculated as the number of railcars on lease as a percentage of total railcars in the fleet.

During 2019, an average of approximately 103,500 railcars, excluding boxcars, were on lease, compared to 102,100 in 2018, and 102,600 in 2017. Changes in railcars on lease compared to prior periods are impacted by the utilization of new railcars purchased under our supply agreements, the utilization of the railcars acquired from ECN Capital Corporation at the end of 2018, and the disposition of railcars that were sold or scrapped. During 2019, the renewal rate change of the Lease Price Index (the "LPI", see definition below) was negative 3.9%, compared to negative 9.8% in 2018 and negative 28.2% in 2017. Lease terms on renewals for cars in the LPI averaged 39 months in 2019, compared to 38 months in 2018, and 33 months in 2017. Additionally, the renewal success rate, which represents the percentage of railcars on expiring leases that were renewed with the existing lessee, was 82.2% in 2019, compared to 82.9% in 2018, and 74.7% in 2017. The renewal success rate is an important metric because railcars returned by our customers may incur transition costs, including additional repairs and related service prior to being leased to new customers, which may increase maintenance and associated expenses.

In 2014, we entered into a long-term supply agreement with Trinity Rail Group, LLC ("Trinity") a subsidiary of Trinity Industries. Under the terms of that agreement, we agreed to order 8,950 newly built railcars. As of December 31, 2019, all 8,950 railcars have been ordered, of which 7,678 railcars have been delivered. On May 24, 2018, we amended our long-term supply agreement with Trinity to extend the term to December 2023, and we agreed to purchase an additional 4,800 tank cars (1,200 per year) beginning in January 2020 and continuing through the expiration of the extended term. At December 31, 2019, 1,128 railcars have been ordered pursuant to the amended terms of the agreement.

In 2018, we entered into a multi-year railcar supply agreement with American Railcar Industries, Inc. ("ARI"), pursuant to which we will purchase 7,650 newly built railcars. The order encompasses a mix of tank and freight cars that are to be delivered over a five-year period, beginning in April 2019. ARI's railcar manufacturing business was subsequently acquired by The Greenbrier Companies, Inc. ("Greenbrier") on July 26, 2019, and Greenbrier assumed all of ARI's obligations under our long-term supply agreement. Under this agreement, 450 railcars were to be delivered in 2019, with the remaining 7,200 to be delivered ratably over the four-year period of 2020 to 2023. As of December 31, 2019, 2,129 railcars have been ordered. The agreement also includes an option to order up to an additional 4,400 railcars subject to certain restrictions.

Additionally, we acquired a fleet of 3,098 railcars from ECN Capital Corporation, with 2,832 of the railcars acquired in 2018 and the remaining 266 railcars in early 2019.

As of December 31, 2019, leases for approximately 17,800 tank cars and freight cars and approximately 3,200 boxcars are scheduled to expire in 2020. These amounts exclude railcars on leases expiring in 2020 that have already been renewed or assigned to a new lessee.


26


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

2019

2018

2017
Revenues








Lease revenue
$
868.3


$
873.4


$
899.9

Other revenue
96.2


68.1


77.5

   Total Revenues
964.5


941.5


977.4

 
 
 
 
 
 
Expenses








Maintenance expense
267.9

 
254.7

 
265.0

Depreciation expense
256.9


248.5


239.4

Operating lease expense
54.4


49.6


60.7

Other operating expense
23.9


27.3


28.7

   Total Expenses
603.1


580.1


593.8

 
 
 
 
 
 
Other Income (Expense)








Net gain on asset dispositions
54.6

 
76.3

 
45.2

Interest expense, net
(134.5
)

(125.2
)

(121.2
)
Other expense
(5.3
)
 
(5.2
)
 
(5.9
)
Share of affiliates' pre-tax income (loss)


0.6


(2.4
)
Segment Profit   
$
276.2


$
307.9


$
299.3

 
 
 
 
 
 
Investment Volume
$
502.2


$
737.4


$
460.9


The following table shows the components of Rail North America's lease revenue for the years ended December 31 (in millions):
 
2019
 
2018
 
2017
Railcars
$
759.8

 
$
757.8

 
$
785.1

Boxcars
72.2

 
76.8

 
75.7

Locomotives
36.3

 
38.8

 
39.1

Total
$
868.3

 
$
873.4

 
$
899.9


Lease Price Index

Our LPI is an internally-generated business indicator that measures lease rate pricing on renewals for our North American railcar fleet, excluding boxcars. We calculate the index using the weighted-average lease rate for a group of railcar types that we believe best represents our overall North American 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, weighted by fleet composition. The average renewal lease term is reported in months and reflects the average renewal lease term of railcar types in the LPI, weighted by fleet composition.




27


chart-14e6f21c8acc5758b74.jpg
Rail North America Fleet Data
The following table shows fleet activity for Rail North America railcars, excluding boxcars, for the years ended December 31:
 
2019
 
2018
 
2017
Beginning balance
105,472

 
103,730

 
104,522

Cars added
3,145

 
6,958

 
3,442

Cars scrapped
(2,172
)
 
(2,211
)
 
(2,900
)
Cars sold
(3,600
)
 
(3,005
)
 
(1,334
)
Ending balance
102,845

 
105,472

 
103,730

Utilization rate at year end
99.3
%
 
99.4
%
 
98.2
%
Active railcars at year end
102,127

 
104,864

 
101,849

Average (monthly) active railcars
103,452

 
102,061

 
102,600


28



chart-ca35761780bc5819be4.jpg

The following table shows fleet statistics for Rail North America boxcars for the years ended December 31:
 
2019
 
2018
 
2017
Ending balance
15,264

 
16,220

 
16,398

Utilization rate at year end
95.0
%
 
94.2
%
 
92.6
%

The following table shows fleet activity for Rail North America locomotives for the years ended December 31:
 
2019
 
2018
 
2017
Beginning balance
680

 
665

 
660

Locomotives added, net of scrapped or sold
(51
)
 
15

 
5

Ending balance
629

 
680

 
665

Utilization rate at year end
90.3
%
 
91.5
%
 
92.5
%
Active locomotives at year end
568

 
622

 
615

Average (monthly) active locomotives
608

 
622

 
623


Segment Profit

In 2019, segment profit of $276.2 million decreased 10.3% compared to $307.9 million in 2018. The decrease was driven by lower net gains on asset dispositions, higher maintenance expense, and lower lease revenue, partially offset by higher other revenue. Asset remarketing income is dependent on a number of factors and will vary from year to year.

In 2018, segment profit of $307.9 million increased 2.9% compared to $299.3 million in 2017. The increase was driven by higher asset disposition gains and lower maintenance expense, partially offset by lower lease revenue and lower lease termination fees.

29


Revenues

In 2019, lease revenue decreased $5.1 million, or 0.6%. The decrease was due to lower lease rates, higher rental abatement attributable to more railcars in the maintenance network, and fewer locomotives on lease in the current year, partially offset by more railcars on lease. Other revenue increased $28.1 million, due to higher repair revenue and higher lease termination fees in 2019.

In 2018, lease revenue decreased $26.5 million, or 2.9%, primarily due to lower lease rates and fewer railcars on lease. Other revenue decreased $9.4 million, largely a result of lower lease termination fees in 2018. Other revenue in 2017 included $7.8 million as compensation for damage to returned railcars. The expenses to repair these railcars were recognized as incurred.

Expenses

In 2019, maintenance expense increased $13.2 million, driven by more tank qualifications in 2019, as expected, as well as higher repairs performed by the railroads on GATX-owned railcars. Depreciation expense increased $8.4 million due to new railcar investments, including the railcars acquired from ECN Capital Corporation in 2018. Operating lease expense increased $4.8 million, primarily a result of the elimination of deferred gain amortization for sale-leaseback transactions in accordance with the new lease accounting standard. See "Note 2. Accounting Changes" and "Note 5. Leases" in Part II, Item 8 of this Form 10-K for further detail regarding the impact of the new lease accounting standard. Other operating expense decreased $3.4 million, primarily due to lower switching, storage, and freight costs as a result of continued high utilization.

In 2018, maintenance expense decreased $10.3 million, driven by fewer repairs performed by the railroads, as well as fewer tank qualifications and lower costs from assigning railcars to new lessees. Depreciation expense increased $9.1 million due to railcar investments and the purchase of railcars previously on operating leases. Operating lease expense decreased $11.1 million, resulting from the purchase of railcars previously on operating leases. Other operating expense decreased $1.4 million, due to lower switching, storage, and freight costs, reflective of lower assignment activity.

Other Income (Expense)

In 2019, net gain on asset dispositions decreased $21.7 million, resulting from lower asset remarketing gains and lower net scrapping gains. Net scrapping gains were lower in the current year due to certain railcars and locomotives scrapped at a loss, as well as lower scrap prices per ton. See "Note 23. Financial Data of Business Segments", Item 8 of this Form 10-K, for further details of the components of net gain on asset dispositions. The amount and timing of disposition gains is dependent on a number of factors and will vary from year to year. Net interest expense increased $9.3 million, driven by a higher average debt balance and a higher average interest rate.

In 2018, net gain on asset dispositions increased $31.1 million, attributable to more railcars sold in 2018, as well as higher scrapping gains resulting primarily from a higher scrap price per ton. Net interest expense increased $4.0 million, driven by a higher average interest rate and a higher average debt balance.

Investment Volume

During 2019, investment volume was $502.2 million compared to $737.4 million in 2018, and $460.9 million in 2017. We acquired 3,225 railcars in 2019, compared to 7,489 railcars, including 2,832 railcars purchased as part of the ECN Capital Corporation transaction in 2018, and 3,613 railcars in 2017.

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.


30


RAIL INTERNATIONAL

Segment Summary
 
Rail International, composed primarily of GATX Rail Europe ("GRE"), produced solid operating results in 2019. Strong replacement demand and increasing new railcar production backlogs drove record utilization and strong lease rates at GRE. Railcar utilization for GRE was 99.3% at the end of 2019, compared to 98.8% at the end of 2018, and 96.8% at the end of 2017. Utilization is calculated as the number of railcars on lease as a percentage of total railcars in the fleet. In addition, our operations in India ("GRI") benefited from more cars on lease as it continued to significantly expand its fleet.

In 2018, GRE recorded $9.5 million of expenses attributable to the closure of a railcar maintenance facility in Germany.

GRI continued to focus on investment opportunities, diversification of its fleet, and developing relationships with customers, suppliers and the Indian Railways. In 2019, GRI added 1,626 railcars, compared to 1,001 in 2018 and 275 in 2017. GRI expects continued fleet growth and diversification in 2020.

Rail Russia focused on managing its existing fleet and maintaining strong relationships with its customer base. In 2019, Rail Russia added 26 railcars, compared to 184 in 2018 and zero in 2017.

The following table shows Rail International's segment results for the years ended December 31 (in millions):
 
2019
 
2018
 
2017
Revenues
 
 
 
 
 
Lease revenue
$
219.2

 
$
209.3

 
$
190.3

Other revenue
8.5

 
8.2

 
6.8

   Total Revenues
227.7

 
217.5

 
197.1

 
 
 
 
 
 
Expenses
 
 
 
 
 
Maintenance expense
46.5

 
44.5

 
41.1

Depreciation expense
57.8

 
55.5

 
48.9

Other operating expense
6.8

 
5.8

 
4.7

   Total Expenses
111.1

 
105.8

 
94.7

 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 
Net gain (loss) on asset dispositions
1.7

 
(0.2
)
 
3.1

Interest expense, net
(40.6
)
 
(35.9
)
 
(33.4
)
Other income (expense)
1.2

 
(7.0
)
 
(3.2
)
Share of affiliates' pre-tax loss

 

 
(0.1
)
Segment Profit   
$
78.9

 
$
68.6

 
$
68.8

 
 
 
 
 
 
Investment Volume
$
215.7

 
$
152.7

 
$
90.9



31


The following table shows fleet activity for GRE railcars for the years ended December 31:
 
2019
 
2018
 
2017
Beginning balance
23,412

 
23,166

 
23,122

Cars added
1,417

 
847

 
871

Cars scrapped or sold
(268
)
 
(601
)
 
(827
)
Ending balance