GATX Annual Report 2017 | Quarterlytics

Plain-text annual report

2017 | AR G A T X C o r p o r a t i o n / / 2 0 1 7 A n n u a l R e p o r t GATX CORPORATION 222 West Adams Street, Chicago, IL 60606-5314 (312) 621-6200 // (800) 428-8161 www.gatx.com 2017 REVIEW FINANCIAL HIGHLIGHTS (In millions, except per share data) Net Income Per Diluted Share Net Income EXCLUDING TAX ADJUSTMENTS AND OTHER ITEMS (a) Net Income Per Diluted Share Net Income 2015 2016 2017 $ 205.3 $ 4.69 $ 234.9 $ 5.37 $ 257.1 $ 6.29 $ 235.9 $ 5.77 $ 502.0 $ 12.75 $ 185.0 $ 4.70 (a) The following items for each year noted are referred to as “Tax Adjustments and Other Items:” – Results for 2017 included the impact of the Tax Cuts and Jobs Act enacted in 2017, and losses and gains associated with sales of certain investments. – Results for 2016 included certain tax benefits, residual sharing gains, and losses and gains associated with impairments and sales of certain investments. – Results for 2015 included certain tax expenses and benefits, losses and gains associated with impairments and sales of certain investments, and expenses associated with the roll-out of an early retirement program for certain eligible employees. CASH RETURNED TO SHAREHOLDERS ($ millions) $1.6 Billion + RETURNED TO SHAREHOLDERS (2007 – 2017) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 200 400 600 800 1,000 1,200 1,400 1,600 Cumulative Dividends Cumulative Share Repurchase GATX Corporation (NYSE: GATX) 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. 2018 marks GATX’s 120th year of providing customers with quality railcars and services in markets around the world. ANNUAL MEETING Monday, April 30, 2018, 12:00 p.m. Central Time Northern Trust Company Assembly Room, Sixth Floor 50 South LaSalle Street, Chicago, IL 60603 GATX Corporation welcomes and encourages questions and comments from its shareholders, potential investors, financial professionals, and the public at large. To better serve interested parties, the following GATX personnel may be contacted by email, telephone, letter, or fax: SHAREHOLDER INQUIRIES Inquiries regarding dividend checks, the dividend reinvestment plan, stock certificates, replacement of lost certificates, address changes, account consolidation, transfer procedures, and year-end tax information should be addressed to GATX Corporation’s transfer agent and registrar: Computershare P.O. Box 505000, Louisville, KY 40233 Toll Free Number: (866) 767-6259 TDD for Hearing Impaired: (800) 231-5469 Outside the U.S.: (201) 680-6578 TDD Outside the U.S.: (201) 680-6610 www.computershare.com/investor INFORMATION RELATED TO SHAREHOLDER OWNERSHIP, DIVIDEND PAYMENTS, OR SHARE TRANSFERS Lisa M. Ibarra, Assistant Secretary Telephone: (312) 621-6603 Fax: (312) 621-6647 Email: lisa.ibarra@gatx.com TO REQUEST PUBLISHED FINANCIAL INFORMATION AND FINANCIAL REPORTS GATX Corporation Investor Relations Department 222 West Adams Street, Chicago, IL 60606-5314 Telephone: (800) 428-8161 Fax: (312) 621-6648 Email: ir@gatx.com REQUEST LINE FOR MATERIALS (312) 621-6300 ANALYST, INSTITUTIONAL SHAREHOLDER, AND FINANCIAL COMMUNITY INQUIRIES Jennifer McManus, Director, Investor Relations Telephone: (312) 621-6409 Fax: (312) 621-6648 Email: jennifer.mcmanus@gatx.com INDIVIDUAL INVESTOR INQUIRIES Irma Dominguez, Investor Relations Coordinator Telephone: (312) 621-8799 Fax: (312) 621-6648 Email: irma.dominguez@gatx.com FINANCIAL INFORMATION AND PRESS RELEASES A copy of the Company’s Annual Report on Form 10-K for 2017 and selected other information are available without charge. Corporate information and press releases can be found at GATX’s website, www.gatx.com. Requests for information can be made through the site, and many GATX publications can be directly viewed or downloaded. A variety of current and historical financial information also is available at this site. QUESTIONS REGARDING SALES, SERVICE, LEASE INFORMATION, OR CUSTOMER SOLUTIONS Rail North America/Rail International: (312) 621-6200 American Steamship Company: (716) 635-0222 Portfolio Management: (312) 621-6200 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Statements in this Annual 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,” “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 in our other filings with the SEC, including our Form 10-K for the year ended December 31, 2017, and subsequent reports on Form 10-Q, 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 > inability to maintain our assets on lease at satisfactory rates due to over- supply of railcars in the market or other changes in supply and demand > a significant decline in customer demand for our railcars or other 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 supply chains — availability of pipelines, trucks, and other alternative modes of transportation — other operational or commercial needs or decisions of our customers > higher costs associated with increased railcar assignments 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 > reduced opportunities to generate asset remarketing income > operational and financial risks related to our affiliate investments, including the Rolls-Royce & Partners Finance joint ventures (collectively the “RRPF affiliates”) > the impact of changes to the Internal Revenue Code as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), and uncertainty as to how this legislation will be interpreted and applied > 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 > competitive factors in our primary markets, including competitors with a significantly lower cost of capital than GATX > risks related to international operations and expansion into new geographic markets > changes in, or failure to comply with, laws, rules, and regulations > inability to obtain cost-effective insurance > environmental remediation costs > inadequate allowances to cover credit losses in our portfolio > inability to maintain and secure our information technology infrastructure from cybersecurity threats and related disruption of our business ASSET MIX Including on- and off-balance sheet assets 68% 17% 7% 4% 4% RAIL NORTH AMERICA RAIL INTERNATIONAL PORTFOLIO MANAGEMENT AMERICAN STEAMSHIP COMPANY OTHER $7.9 Billion NET BOOK VALUE $4.70 INCOME PER DILUTED SHARE* 13% RETURN ON EQUITY* $603M INVESTMENT VOLUME ($ MILLIONS) $6.00 $4.50 $3.00 $1.50 20% 15% 10% 5% $800 $600 $400 $200 . 7 3 5 $ . 7 7 5 $ . 0 7 4 $ % 8 1 % 8 1 % 3 1 5 1 7 $ 1 2 6 $ 3 0 6 $ CASH FROM OPERATIONS AND PORTFOLIO PROCEEDS ($ MILLIONS) $1,200 $1,024 $ 900 $ 600 $ 300 $853 4 2 2 $ $663 6 6 1 $ 9 2 6 $ 7 9 4 $ 2 8 4 $ 2 4 5 $ ’15 ’16 ’17 *Excluding Tax Adjustments and Other Items (a) ’15 ’16 ’17 *Excluding Tax Adjustments and Other Items (a) ’15 16 ’17 ’15 ’16 ’17 Cash from Operations Portfolio Proceeds All data (including segment overview sections) as of 12/31/17. NON-GAAP FINANCIAL MEASURES For a reconciliation of non-GAAP financial measures contained herein, refer to our Annual Report on Form 10-K that has been included as part of this Annual Report to Shareholders. GATX operates four primary business segments: Rail North America, Rail International, Portfolio Management, and American Steamship Company. Rail North America GATX is a leading full-service railcar lessor in North America. We provide maintenance, training, engineering support, and other services our customers rely on to safely ship their products. The North American railcar leasing market experienced its third year of a downturn in 2017. Large numbers of idle existing railcars, combined with the overbuilding of new railcars, caused a continued oversupply situation in the market. Despite relatively stable underlying demand and modest improvement in railcar loadings, the railcar oversupply tempered lease rate increases across the industry. In light of these industry conditions, our performance was outstanding. We maintained an industry-leading fleet utilization of over 98% throughout the year, reflective of the diversity and quality of our fleet and the breadth of our customer relationships. We also operated our maintenance network safely and efficiently, and consistent with our strategy, we increased the percentage of railcar service events completed in our owned repair facilities. Furthermore, we invested over $460 million in new railcars during the year, ensuring that we will continue to meet our customers’ growing railcar needs. $3.3B COMMITTED LEASE RECEIPTS WITH AN EXCELLENT CUSTOMER BASE 98.2% FLEET UTILIZATION AS OF 12/31/17 59,000 SERVICE EVENTS PERFORMED IN 2017 NORTH AMERICAN FLEET (120,000 wholly owned railcars) INDUSTRIES SERVED (160+ car types, 850+ customers, 600+ commodities) 31% General Service Tank 14% Boxcar 14% Gravity Covered Hopper 11% High Pressure Tank 9% Other Covered Hopper 9% Specialty Tank 8% Open Top 4% Other 27% Chemicals 26% Refiners & Other Petroleum 17% Railroads & Other Transports 12% Food & Agriculture 7% Mining, Minerals, & Aggregate 11% Other Rail International The largest contributor to Rail International is GATX Rail Europe (GRE), a leading full-service tank and specialty freight railcar lessor in Europe. After several years of stable but tepid demand, GRE’s primary end markets improved in 2017. Demand increased for our key car types, including those serving the mineral oil, liquefied petroleum gas and chemical markets, and the lease rate environment stabilized. GATX India, uniquely positioned to capitalize on the strong growth in freight rail traffic in India, expanded and diversified its railcar fleet and customer base. GEOGRAPHIES SERVED BY GRE (Based on 2017 Revenue) GERMANY 42% THE NETHERLANDS 4% 25% POLAND [B] POLAND SWITZERLAND 3% 3% CZECH REPUBLIC AUSTRIA 8% 3% HUNGARY 12% OTHER GRE RAILCAR FLEET (23,200 wholly owned railcars) 60% MINERAL OIL 17% LPG 13% CHEMICALS 10% POWDER AND OTHER Through Rail North America and Rail International, we are the leading global provider of railcar leasing and services. 20+ COUNTRIES SERVED IN EUROPE AND ASIA 225+ CUSTOMERS 96.8% GRE FLEET UTILIZATION AS OF 12/31/17 GRE’S PRIMARY END MARKETS IMPROVED IN 2017 $2.2B COMMITTED LEASE RECEIPTS AT RRPF Portfolio Management owns a share of one of the largest aircraft spare engine leasing businesses in the world. Portfolio Management This segment is largely composed of our 50 percent ownership in the Rolls-Royce and Partners Finance affiliates (RRPF). In 2017, RRPF had record investment volume of approximately $320 million, reflecting strong demand across our primary engine types. As growth in air travel and aircraft in service continues on a steady and strong upward trend, RRPF is positioned to meet this demand with a base of over 430 aircraft spare engines with a net book value of approximately $3.8 billion. 29% 13% 6% 13% 25% 5% 9% RRPF ENGINE TYPES 29% Trent XWB (A350) 25% Trent 700 (A330) 13% V2500 (A320) 13% Trent 900 (A380) 6% Trent 800 (B777) 5% Trent 1000 (B787) 9% Other 430+ AIRCRAFT SPARE ENGINES American Steamship Company American Steamship Company (ASC) is the largest U.S.-flagged operator on the Great Lakes with 12 self-unloading vessels. The composition of the fleet, ranging from 635-foot to 1,000-foot vessels, meets the diverse needs of our customers. In 2017, we moved 27.8 million tons of iron ore, coal, and limestone while focusing on safe, environmentally responsible and efficient operations. The 2017 volume increase reflected solid demand across commodities. Demand for iron ore shipments was particularly strong throughout 2017. 32% U.S. FLAG MARKET SHARE American Steamship Company operates the largest U.S.-flagged fleet of shipping vessels on the Great Lakes. Letter from the Chairman In 2017, GATX invested over $600 million in railcars and related assets around the world, while returning $168 million to shareholders through dividends and share repurchases. We also continued to execute our business unit strategies. For instance, we continued to outperform our competitors in the volatile North American railcar leasing market by tailoring our operating approach to stay ahead of the cycle. We increased our customers’ efﬁciency by modernizing our railcar ﬂeet in Europe. We also grew our railcar ﬂeet in the higher growth emerging market of India, and we strengthened our Rolls-Royce joint ventures’ leading position in aircraft spare engine leasing. Despite operating in the third year of a railcar leasing market downturn in North America, GATX earned $4.70 per diluted share and produced a 13.1% return on equity, excluding tax adjustments and other items. To put that performance in perspective, our 2017 diluted earnings per share are 35% higher than our diluted earnings per share of $3.49 at the peak of the last business cycle. In my 2017 Chairman’s letter, I described in detail how GATX thinks about value creation, our growth and return strategies and challenges, and how our Board of Directors reviews and monitors our strategies and execution. In this letter, I will go in a different direction. This year, I would like to discuss the latest trend in corporate governance. Currently, there is increasing focus on environmental, social, and governance issues (ESG) for public companies. The best example is that the CEO of the largest asset manager in the world recently sent a letter to public company CEOs urging them to account for the societal impact of their businesses. To quote Larry Fink, Chairman and Chief Executive Ofﬁcer of BlackRock, Inc., “To prosper over time, every company must not only deliver ﬁnancial performance, but also show how it makes a positive contribution to society. Companies must beneﬁt all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” At GATX, we could not agree more. That is why our vision statement for over a decade has been: “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.” The two statements are strikingly similar, and I thought it would be helpful to provide a few data points that, while not all-inclusive, demonstrate how we are achieving our vision and delivering on our commitments to our various constituencies. CUSTOMERS Our success in delivering for our customers is best represented by our industry-leading railcar ﬂeet utilization in North America. Standing at over 98% despite the weak market, it clearly demonstrates our customers’ preference for working with GATX versus our competitors. Our top ten customers have been with GATX, on average, for 43 years, which is a testament to the strength of our relationships. Another data point is our customers’ increasing preference to shop their cars in GATX’s owned maintenance network, where we believe the safety, quality, delivery, and cost are superior to our competitors. SHAREHOLDERS Our success in delivering for our shareholders is best represented by our strong long-term shareholder return. In the decade that our vision has been in place, GATX has outperformed the S&P 500 and the Russell 3000. In addition, 2018 marks the 100th consecutive year in which GATX will pay a dividend to its common shareholders, a record that few companies can match. EMPLOYEES We constantly work to deliver for our employees by providing an inclusive and engaging work environment. For example, in 2017, our employee engagement score increased for the third consecutive year, and the Chicago Tribune recognized GATX as one of Chicago’s “Top Workplaces.” COMMUNITIES WHERE WE OPERATE There are countless examples demonstrating how our businesses constantly strive to be recognized as great corporate citizens by the communities where we operate. For example, in 2017, GATX was a repeat recipient of the American Chemistry Council’s (ACC) Responsible Care® Partner of the Year Award. GATX is a Responsible Care® Partner in both the ACC’s program in the United States and the Chemistry Industry Association of Canada’s Responsible Care® Program, and we were speciﬁcally recognized for our superb performance and safety record in the distribution, transportation, storage, use, treatment, disposal and/or sales and marketing of chemicals. Another example is GATX’s TankTrainer,™ a 33,500-gallon tank car outﬁtted with a variety of ﬁttings, coatings, and conﬁgurations that has provided a unique learning experience to more than 17,000 ﬁrst responders, customers, rail industry participants, and employees since its inception in 1993. In addition, GATX is the largest single corporate donor in Make-A-Wish Illinois’ history and an important supporter of community efforts such as the Big Shoulders Fund and Breakthrough Shelters in Chicago. Lastly, our American Steamship subsidiary is regularly recognized for its leadership in striving for a ballast water treatment solution on the Great Lakes. For 120 years, GATX employees have been great citizens in their local communities, and we support them in their efforts. This is some of the evidence supporting how we strive to achieve our vision. Importantly, we are also constantly examining whether we need to evolve our vision to adapt to the opportunities and threats presented by economic, social, and technological trends. For instance, we are currently studying whether advances in trucking technology, that range from advanced driver assistance systems to platooning to driverless trucking, pose a long-term threat to rail modal share and trafﬁc growth—and also what opportunities this potential shift may provide. Although these advancements may seem a long way off, we invest in rail assets that will last from 30-50 years; thus, we have to immediately consider these trends and adjust our investment and divestiture plans accordingly. While it would not be wise to lay out a roadmap for our competitors detailing how we will respond to these trends, our constituencies should take faith in the fact that we always consider the long-term impact when we commit our shareholders’ capital. As an example, this long-term focus prevented us from signiﬁcant railcar investment in crude-by-rail service in 2011-2015, while the rest of the industry chased that short-term trend with long-lived assets—another reason why GATX is outperforming its competitors today. I will close by repeating our promise from my 2017 Chairman’s letter: We promise to our shareholders that while we will always adapt and change to stay ahead of changing market conditions, two key philosophies will never change. First, we will always have a long-term focus on investing that matches the long lives of our assets; second, when we do not honestly believe that we can earn an attractive risk-adjusted return on capital, we will return that excess capital to its owners. I am conﬁdent that the employees of GATX will continue delivering superior returns. Thank you for your support, Brian A. Kenney Chairman, President and Chief Executive Ofﬁcer GATX Corporation UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Form 10-K For the fiscal year ended December 31, 2017 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-2328 Í ‘ GATX Corporation (Exact name of registrant as specified in its charter) New York (State or Other Jurisdiction of incorporation or Organization) 36-1124040 (I.R.S. Employer Identification No.) 222 West Adams Street Chicago, IL 60606-5314 (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 Common Stock Name of each exchange on which registered New York Stock Exchange Chicago 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 Í No ‘ 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 ‘ No Í 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 Í No ‘ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes Í No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Í Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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. Í Large accelerated filer ‘ Accelerated filer ‘ Non-accelerated filer ‘ 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. ‘ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No Í The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2.5 billion as of June 30, 2017. As of January 31, 2018, 38.0 million common shares were outstanding. DOCUMENTS INCORPORATED BY REFERENCE GATX’s definitive Proxy Statement to be filed on or about March 19, 2018 PART III GATX CORPORATION 2017 FORM 10-K INDEX Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part I Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . Discussion of Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance Sheet Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flow Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Critical Accounting Policies and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part III Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part IV Page 2 3 13 20 21 22 22 23 26 27 27 46 48 51 54 58 58 62 63 117 117 119 119 119 119 119 119 120 122 123 Item No. Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Item 16. 1 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,” “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: • • • • • • • to damages, exposure and civil penalties, and reputational harm arising from a negative outcome in litigation, including claims arising from an accident involving our railcars criminal fines, inability to maintain our assets on lease at satisfactory rates due to oversupply of railcars in the market or other changes in supply and demand a significant decline in customer demand for our railcars or other 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 supply chains availability of pipelines, alternative modes of transportation trucks, and other other operational or commercial needs or decisions of our customers costs associated with railcar higher assignments following non-renewal of leases, customer defaults, and compliance maintenance programs or other maintenance initiatives increased 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 reduced opportunities to generate asset remarketing income • • • • • • • • • • • • • 2 operational and financial risks related to our affiliate investments, including the Rolls-Royce & Partners Finance joint ventures (collectively the “RRPF affiliates”) the impact of changes to the Internal Revenue Code as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), and uncertainty as to how this legislation will be interpreted and applied. fluctuations in foreign exchange rates to successfully failure collective bargaining agreements with the unions representing a substantial portion of our employees negotiate 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 factors primary markets, competitive including competitors with a significantly lower cost of capital than GATX our in related risks expansion into new geographic markets international to operations and changes in, or failure to comply with, laws, rules, and regulations inability to obtain cost-effective insurance environmental remediation costs inadequate allowances to cover credit losses in our portfolio inability to maintain and secure our information technology infrastructure from cybersecurity threats and related disruption of our business Item 1. Business GENERAL PART I 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, American Steamship Company (“ASC”), and Portfolio Management. 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. For geographic and financial information relating to each of our reportable segments, see “Note 21. Foreign Operations” and “Note 23. Financial Data of Business Segments” included with our consolidated financial statements. At December 31, 2017, we had total assets of $7.9 billion, comprised largely of railcars. This amount includes $0.4 billion of off-balance sheet assets, primarily railcars that were financed with operating leases. 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 145,000 railcars is one of the largest railcar lease fleets in the world. With more than a century of rail industry experience, we offer customers leasing, maintenance, asset, financial, and management expertise. We currently lease tank cars, freight cars, and locomotives in North America, tank cars and freight cars in Europe and freight cars in India and Russia. We also have an ownership interest in an affiliate investment that owns approximately 2,100 railcars, and we actively manage more than 300 railcars for other third-party owners. The following table sets forth our worldwide rail fleet data as of December 31, 2017: Tank Railcars Freight Railcars Total Fleet Affiliate Railcars Managed Railcars Total Railcars Locomotives Rail North America . . . . . . . . Rail International . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . 60,459 22,443 82,902 59,669 1,945 61,614 120,128 24,388 144,516 2,141 — 2,141 341 7 348 122,610 24,395 147,005 665 — 665 3 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 more than 650 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 Petroleum Petroleum Chemical Plastics Agriculture Energy Food Consumer Goods Forest Products Packaging Construction Packaged Food and Beverages Paper and Packaging Lumber and Building Products Principal Industries Served Agriculture Chemical Petroleum Food Energy Steel Construction Industrial Industrial Construction Food Chemical Refined Petroleum Products Construction Forest Products Natural Gas Liquids Sulfuric Acid Plastics Fertilizer Coal Fertilizer Propylene Molten Sulfur Flour Grain Metals and Related Principal Commodities Biofuels Edible Oils and Syrups Chemicals Vinyl Chloride Monomer Hydrochloric Acid Sugar Sand Aggregates Miscellaneous Chemicals Caustic Soda Starch Cement Coke Mixed Freight Phosphoric Acid Carbon Black Soda Ash Waste GATX’s Worldwide Railcar Fleet GATX’s Industries Served Boxcars 11% Other 4% General Service Tank Cars 39% Tank Cars 58% Mining, minerals & aggregates 10% Food & agriculture 10% Other 10% Refiners & other petroleum 31% Open-Top Cars 7% Specialty Covered Hoppers 2% Pneumatic Covered Hopper 6% Gravity Covered Hoppers 12% Specialty & Acid Tank Cars 7% High Pressure Tank Cars 12% Railroads & other transports 17% Chemicals & plastics 22% Covered Hoppers 20% Approximately 145,000 Railcars as of 12/31/2017 Based on 2017 Combined Rail North America and Rail International revenues 4 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 useful economic 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 870 customers. In 2017, 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 four years as of December 31, 2017. Rail North America’s primary competitors are Union Tank Car Company, Wells Fargo Rail, the CIT Group, Trinity Industries Leasing Company, SMBC Rail Services, LLC, the Andersons Rail Group, and American Railcar Industries, Inc. Rail North America competes primarily on the basis of lease rate, maintenance capabilities, customer relationships, engineering expertise, and availability of railcars. Rail North America purchases new railcars from a number of manufacturers, including Trinity Industries, American Railcar Industries, 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 that took effect in mid-2016. Under the terms of that agreement, we may order up to 8,950 newly built railcars over a four-year period from March, 2016 through March, 2020. We may order either tank or freight cars; however, we expect that the majority of the order will be for tank cars. As of December 31, 2017, 5,249 railcars have been ordered, of which 3,032 railcars have been delivered. Pursuant to the terms of the agreement, the parties conducted a review of the contract pricing in January 2017 as a result of changes in market rates. Based on this review, the parties agreed to reduce contract pricing for eligible future orders beginning January 1, 2018. Rail North America also owns a fleet of locomotives, consisting of 627 four-axle and 38 six-axle locomotives as of December 31, 2017. Locomotive customers are primarily regional and short-line railroads, industrial users, and Class I railroads. Lease terms vary from month-to-month to 10 years. As of December 31, 2017, 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. Rail North America also remarkets rail assets, including assets managed for third parties and an affiliate. Remarketing activities related to GATX’s owned fleet generate gains which may 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, 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. At December 31, 2017, Rail North America’s maintenance network consisted of: • Six major maintenance facilities that can complete all types of maintenance services. • Four maintenance facilities that primarily focus on routine cleaning, repair, and regulatory compliance services. • Five customer-dedicated sites operating solely within specific customer facilities that offer services tailored to the needs of our customers’ fleets. • Fifteen locations with mobile units that travel to many track-side field locations to provide spot repairs and interior cleaning services, thus avoiding the need to send a railcar to a major maintenance facility. 5 The maintenance network is supplemented by a number of preferred third-party maintenance providers. In certain cases, we have entered into fixed-capacity contracts with these third parties under which Rail North America has secured access to maintenance capacity. In 2017, wholly owned and third-party maintenance facilities performed approximately 59,000 service events, including multiple independent service events for the same car. In 2017, third-party maintenance network expenses accounted for approximately 32% of Rail North America’s total maintenance network expenses (excluding repairs performed by railroads). Approximately 73% of the maintenance hours incurred for our tank cars and specialty freight cars during 2017 were performed internally at our own maintenance facilities. Our maintenance activities are substantially dedicated to servicing our wholly owned railcar fleet pursuant to the provisions of our lease contracts. Additionally, our customers periodically utilize our services that are not included in the full-service lease agreement, such as repairs of railcar damage or other customer-specific requirements. We also provide maintenance services to one of our affiliates, as noted below. Revenue earned from these types of maintenance services is recorded in other revenue. Affiliates Adler Funding LLC (“Adler”) is a 12.5% owned railcar leasing partnership that was formed in 2010 with UniCredit Bank AG, Sperber Rail Holdings Inc., and LBT Holding Corporation. Rail North America provides lease, maintenance and asset remarketing services to Adler, for which it receives a base service fee and a performance-based asset remarketing fee. As of December 31, 2017, Adler owned approximately 2,140 railcars in North America consisting of freight cars with an average age of approximately fourteen years. RAIL INTERNATIONAL Rail International is composed of our operations in Europe (“GATX Rail Europe” or “GRE”), India (“Rail India”), and Russia (“Rail Russia”). GRE leases railcars to customers throughout Europe pursuant to full-service leases under which it maintains the railcars and provides value-adding 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 230 customers. In 2017, two customers each accounted for more than 10% of GRE’s total lease revenue and the top ten customers combined accounted for approximately 60% of GRE’s total lease revenue. GRE’s lease terms generally range from one to ten years and as of December 31, 2017, the average remaining lease term of the European fleet was approximately two years. GRE competes principally on the basis of customer Its primary competitors are VTG Aktiengesellschaft, the Ermewa Group, Nacco, Wascosa AG, and On Rail. lease rate, maintenance expertise, and availability of relationships, railcars. GRE acquires new railcars primarily from Astra Rail Industries S.A. and Wagony Swidnica sp. z.o.o, both of which are a part of Greenbrier Europe, as well as Tatravagónka a.s., and Feldbinder Spezialfahrzeugwerke GmbH. Additionally, GRE’s Ostróda, Poland maintenance facility assembles several hundred tank cars each year. As of December 31, 2017, GRE had commitments to acquire approximately 300 newly manufactured railcars to be delivered in 2018, primarily from Tatravagónka a.s. Rail India began operations in 2012 as the first company registered to lease railcars under the Indian Railways Wagon Leasing Scheme. As of December 31, 2017, Rail India owned 1,052 railcars with estimated useful lives of 20-25 years. Rail India’s lease terms, all of which are net leases, generally range from one to ten years and as of December 31, 2017, the average remaining lease term of the Indian fleet was approximately four years. As of December 31, 2017, Rail India had already entered into contracts to acquire approximately 350 additional railcars to be delivered in 2018. As of December 31, 2017, Rail Russia owned 170 railcars and had commitments to acquire approximately 165 railcars to be delivered in 2018. Maintenance GRE operates maintenance facilities in Hannover, Germany and Ostróda, Poland that perform significant repairs, regulatory compliance and modernization work for owned railcars. These service centers are supplemented by a number of third-party repair facilities, which in 2017 accounted for approximately 37% of GRE’s fleet repair costs. 6 Similar to our Rail North America segment, Rail International’s customers periodically require maintenance services that are not included in the full-service lease agreement. For GRE, 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. ASC ASC operates the largest fleet of U.S.-flagged vessels on the Great Lakes and strives to attain the highest levels of safety, delivery efficiency, and environmental stewardship. ASC provides waterborne transportation of dry bulk commodities such as iron ore, coal, limestone aggregates, and metallurgical include steel making, domestic automobile manufacturing, electricity generation, and non-residential construction. Customer service, primarily in the form of scheduling flexibility, vessel availability, reliability, and operating safety, is key 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. limestone, which serve end markets that At December 31, 2017, ASC’s fleet consisted of 12 vessels with a net book value of $251.2 million. All vessels are compliant with applicable regulatory guidelines. The vessels are diesel powered, with an average age of 40 years and estimated useful lives of 65 years. In December 2017, ASC sold three vessels and also returned a vessel that was previously leased. In addition, in March 2017, ASC returned the articulated tug-barge that was leased. See the ASC section in Part II, Item 7 of this Form 10-K for further details. For 2018, eleven 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 2018 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. ASC Industries Served Steel 55% Electric Utility 27% ASC Commodities Carried Iron Ore 52% Coal 27% Other 3% Construction 15% Based on 2017 revenue Other 1% Limestone Aggregates 20% Based on 2017 volume 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 twenty-four hours a day, seven days a week. ASC’s vessels are capable of transporting and unloading almost any free flowing, dry bulk commodity. In 2017, ASC served 21 customers, with the top five customers accounting for 84% of total revenue. 7 The following table sets forth ASC’s fleet as of December 31, 2017: Great Lakes Vessels Length (feet) Capacity (gross tons) M/V American Spirit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V Burns Harbor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V Indiana Harbor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V Walter J. McCarthy, Jr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V American Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V American Integrity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V St. Clair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V American Mariner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V H. Lee White . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V John J. Boland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V Sam Laud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M/V American Courage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1004’ 1000’ 1000’ 1000’ 1000’ 1000’ 770’ 730’ 704’ 680’ 634’-10” 634’-10” 62,400 80,900 80,900 80,900 78,850 78,850 44,800 37,300 35,400 34,000 24,300 23,800 ASC’s vessels operate pursuant to customer contracts that stipulate freight volume commitments that may also be supplemented with additional spot volume opportunities. In 2017, ASC operated 12 vessels and carried 27.8 million net tons of cargo. The number of vessels deployed by ASC in any given year is dependent on customer volume requirements. 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. 8 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 “Norgas Vessels”). In prior years, Portfolio Management generated leasing, marine operating, asset remarketing, and management fee income through a collection of diversified wholly owned assets and joint venture investments. In 2015, we made the decision to exit the majority of these ancillary investments within our Portfolio Management segment, including six chemical parcel tankers, a number of inland marine vessels, and our 50% interest in the Cardinal Marine joint venture. These investments have all been sold as of December 31, 2017. See the Portfolio Management section in Part II, Item 7 of this Form 10-K for further details. Investment Portfolio Marine Equipment 23% Other 3% Aircraft Spare Engine Leasing Affiliates 74% The following table sets forth the approximate net book value of Portfolio Management’s assets as of December 31 (in millions): Aggregate Net Book Value of $582.8 million as of 12/31/2017 Investment in RRPF Affiliates Owned Assets Managed Assets 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 434.2 $ 148.6 $ 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375.3 335.1 218.2 301.4 41.6 51.8 114.5 Affiliates The Rolls-Royce & Partners Finance companies (collectively the “RRPF affiliates”) are a group of sixteen 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: lease financing of aircraft spare engines to a diverse group of commercial aircraft operators worldwide and sale-leaseback financing of aircraft spare engines to Rolls- Royce for use in their engine maintenance programs. As of December 31, 2017, the RRPF affiliates, in aggregate, owned 432 engines, of which 229 were on lease to Rolls-Royce. Aircraft engines generally have an estimated economic useful life of 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, 2017, 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 required maintenance activities. Cardinal Marine Investments LLC (“Cardinal Marine”) was a 50% owned marine joint venture with IMC Holdings, a subsidiary of IMC. Cardinal Marine owned five chemical parcel tankers (each with 45,000 dead weight tons carrying capacity) that operated under a pooling arrangement with IMC’s other chemical tankers in support of the movement of liquid bulk chemicals in the Middle East Gulf/Far East and U.S. Gulf/Far East trades. In 2015, we sold our interest in this joint venture to our partner, IMC Holdings. 9 Owned and Managed Assets Historically, Portfolio Management’s wholly owned portfolio consisted of marine assets operating in pooling arrangements, assets subject to operating and finance leases, and secured loans. As of December 31, 2017, Portfolio Management’s remaining owned assets consisted primarily of the Norgas Vessels operating under a pooling arrangement. The Norgas Vessels specialize in the transport of pressurized gases and chemicals, such as liquefied petroleum gas, liquefied natural gas, and ethylene, primarily on shorter-term spot contracts 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, 2017, Portfolio Management’s managed activities consisted primarily of managing leases for three power plants. TRADEMARKS, PATENTS AND RESEARCH ACTIVITIES Patents, trademarks, licenses and research and development activities 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. EMPLOYEES AND EMPLOYEE RELATIONS As of December 31, 2017, we employed 2,267 persons, of whom approximately 45% 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 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. local, and foreign environmental to extensive federal, state, We are subject to, and may from time to time continue to be subject to, environmental cleanup and enforcement actions in the U.S. 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, 2017, 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. 10 EXECUTIVE OFFICERS OF THE REGISTRANT The following information regarding our executive officers is included in Part I in lieu of inclusion in our definitive Proxy Statement: Name Offices Held Brian A. Kenney . . . . . . . . . . Chairman, President and Chief Executive Officer Robert C. Lyons . . . . . . . . . . Executive Vice President and Chief Financial Officer James F. Earl (1) . . . . . . . . . . Executive Vice President and President, Rail International Thomas A. Ellman . . . . . . . . Executive Vice President and President, Rail North America Deborah A. Golden . . . . . . . . Executive Vice President, General Counsel and Corporate Secretary Niyi A. Adedoyin . . . . . . . . . Senior Vice President and Chief Information Officer Michael T. Brooks . . . . . . . . Senior Vice President and Chief Operations Officer, Rail North America James M. Conniff . . . . . . . . . Senior Vice President, Human Resources William M. Muckian . . . . . . . Senior Vice President, Controller and Chief Accounting Officer N. Gokce Tezel (2) . . . . . . . . Senior Vice President and President, Rail International Paul F. Titterton . . . . . . . . . . Senior Vice President and Chief Commercial Officer, Rail North America Eric D. Harkness . . . . . . . . . . Vice President, Treasurer and Chief Risk Officer Jeffery R. Young . . . . . . . . . . Vice President and Chief Tax Officer Position Held Since Age 2005 2012 2012 2013 2012 2016 2016 2014 2007 2018 2015 2012 2015 58 54 61 49 63 50 48 60 58 43 42 45 55 (1) Mr. Earl will retire on March 1, 2018. (2) Mr. Tezel’s role as Senior Vice President and President, Rail International will become effective March 1, 2018, contemporaneously with Mr. Earl’s retirement. • 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. Lyons has served as Executive Vice President and Chief Financial Officer since June 2012. Previously, Mr. Lyons served as Senior Vice President and Chief Financial Officer from 2007 to June 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. Earl has served as Executive Vice President and President, Rail International since June 2012. In addition, Mr. Earl has served as the Chief Executive Officer of American Steamship Company since June 2012. Previously, Mr. Earl served as Executive Vice President and Chief Operating Officer from 2006 to June 2012, Executive Vice President — Rail from 2004 to 2006, Executive Vice President — Commercial at Rail from 2001 to 2004 and in a variety of increasingly responsible positions in the GATX Capital Rail Group from 1988 to 2001. • Mr. Ellman has served as Executive Vice President and President, Rail North America since June 2013. Previously, Mr. Ellman served as Senior Vice President and Chief Commercial Officer from November 2011 to June 2013, Vice President and Chief Commercial Officer from 2006 to November 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. • 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 11 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. Adedoyin was elected Senior Vice President and Chief Information Officer in January 2016. Previously, Mr. Adedoyin served as Vice President and Chief Information Officer from 2013 to 2016 and Senior Director, IT Strategy and Project Management Office from 2008 to 2013. • Mr. Brooks was elected Senior Vice President and Chief Operations Officer, Rail North America in April 2016. Previously, Mr. Brooks served as Senior Vice President, Operations and Technology since June 2013 and Senior Vice President and Chief Information Officer from January 2008 to June 2013. Prior to joining GATX, Mr. Brooks served as Chief Information Officer and Vice President of the retail division of Constellation Energy and held various consulting roles of increasing responsibility with Accenture and Oracle Corporation. • Mr. Conniff has served as Senior Vice President, Human Resources since December 2014. Previously, Mr. Conniff served as Vice President, Human Resources since 2014 and Senior Director, Benefits and Employee Services since 2008. Mr. Conniff joined GATX in 1981 and has held a variety of positions in finance and human resources. • Mr. Muckian has served as Senior Vice President, Controller and Chief Accounting Officer since 2007. Previously, Mr. Muckian served as Vice President, Controller and Chief Accounting Officer from 2002 to 2007, Controller and Chief Accounting Officer from 2000 to 2002, and Director of Taxes of GATX from 1994 to 2000. • Mr. Tezel was elected Senior Vice President and President, Rail International effective March 1, 2018. Previously, Mr. Tezel served as Vice President and Senior Vice President — Business Development, Rail International from March 2015 to February 2018, Vice President and Group Executive, Emerging Markets from July 2012 to February 2015, Vice President — International Business Development from 2008 to July 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. • Mr. Titterton has served as Senior Vice President and Chief Commercial Officer, Rail North America since April 2015. Previously, Mr. Titterton served as Vice President and Chief Commercial Officer from June 2013 to April 2015, Vice President and Group Executive, Fleet Management, Marketing and Government Affairs from December 2011 to June 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. Harkness has served as Vice President, Treasurer and Chief Risk Officer since October 2012. Previously, Mr. Harkness served as Vice President, Chief Risk Officer from September 2010 to October 2012 and Senior Investment Risk Officer from 2007 to September 2010. Prior to joining GATX, Mr. Harkness served in a variety of positions of increasing responsibility in the financial services industry. • Mr. Young has served as Vice President and Chief Tax Officer since January 2015. Previously, Mr. Young served as Vice President of Tax from 2007 to January 2015 and as Director of Tax from 2003 to 2007. Prior to joining GATX, Mr. Young spent twenty years in a variety of tax related positions in public accounting and the financial services industry. 12 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”). Reports filed with the SEC may be viewed at www.sec.gov or obtained at the SEC Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. 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. 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. Customers use certain types of railcars to transport flammable liquids and other hazardous materials, and an accident involving our railcars could lead to litigation and subject us to significant liability, particularly where the accident involves serious personal injuries or the loss of life. If we do not maintain railcars in compliance with governmental regulations and industry rules, we could be subject to fines, penalties, and claims for personal injury, property damage, and environmental 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 may be unable to maintain assets on lease at satisfactory rates. Our profitability depends on our ability to lease assets at satisfactory rates and to re-lease assets upon lease expiration. Circumstances such as excess capacity in particular railcar types or generally in the marketplace, decreases in customer demand for our railcars, economic downturns, changes in customer behavior, or other changes in supply or demand can adversely affect asset utilization rates and lease rates. Economic uncertainty or a decline in customer demand for our assets could cause customers to request shorter lease terms and lower lease rates, which may result in a decrease in our asset utilization rate and reduced revenues. Alternatively, customers may seek to lock-in relatively low lease rates for longer terms, which may result in an adverse impact on current or future revenues. We depend on continued demand from our customers to lease our railcars and utilize our other assets and services. A significant decline in customer demand could negatively impact our business and financial performance. Customer demand for our railcars and other 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 supply chains 13 • Availability of pipelines, trucks, and other alternative modes of transportation • Other operational or commercial needs or decisions of our customers. 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, 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 railcars 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 railcars 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 alternatives that are not delivered by rail. 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 railcars 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. Railroad infrastructure investments that improve efficiency or declines in rail traffic due to decreased demand could increase the average speed at which railroads can operate their trains, which may reduce the number of railcars needed for railroads to haul the same amount of cargo. 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. Reductions in service by railroads to conform to new financial goals or operating practices could reduce the attractiveness of rail to shippers relative to other modes of transportation. In each case, these changes could reduce demand for our railcars and negatively impact revenue and our results of operations. The availability and relative cost of alternative modes of transportation and changes in customer transportation preferences also could reduce demand for our railcars. 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 assets and shipping services is also influenced by many of the factors discussed above. A significant decline in customer demand for our assets and services could adversely affect our financial performance. 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 Act, could negatively impact demand for our assets held for lease. A significant decrease in lease renewals by our customers or a significant increase in the number of tank cars requiring compliance-based maintenance could negatively impact operations and substantially increase our costs. Decreases in customer demand for our railcars could increase the number of leases that are not renewed upon expiration, resulting in the return of railcars. Railcars that are returned by our customers often must undergo maintenance and service work before being leased to new customers. A significant increase in the number of railcars requiring maintenance may negatively affect our operations and substantially increase maintenance and other related costs. In addition, low demand for certain types of railcars in our fleet may make those railcars more difficult to lease to new customers if they are returned at the end of their existing leases or following a customer default, which could negatively affect our results of operations. We also perform a variety of government or industry-mandated maintenance programs on our full-service tank cars based on their service time. These compliance programs are cyclical in nature, and as a result, we can face significant increases in the volume of tank cars requiring extensive maintenance in any given year. A significant increase in the number of tank cars requiring maintenance may negatively impact our operations and substantially increase maintenance and other related costs. In addition, while we have contracted with third party maintenance providers to assist with these compliance procedures to the extent our demand exceeds our owned maintenance capacity, high demand faced by these providers from other tank car owners may constrain our access to the providers or may substantially increase our costs. 14 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. 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 rail assets in order to optimize the composition of our fleet, and these activities generate income that contributes significantly to Rail North America’s 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. We have significant financial exposure related to the performance of our aircraft engine leasing affiliate investments. GATX and Rolls-Royce plc (“Rolls Royce”) each own 50% of sixteen domestic and foreign joint venture entities (collectively, the “RRPF affiliates”) that own and lease aircraft engines to Rolls-Royce and owners and operators of commercial aircraft. These investments expose us to various risks associated with the commercial aviation industry, including geographic exposure and customer concentrations unique to that industry. The financial results of the RRPF affiliates depend heavily on the performance of Rolls-Royce, as Rolls-Royce is both a major customer of, and a critical supplier of maintenance services to, the RRPF affiliates. 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. Recent changes to U.S. federal tax law as a result of the Tax Act may adversely affect our financial condition, results of operations and cash flows. The Tax Act has significantly changed the way that U.S. corporations are taxed at the federal level, including by: • • • • Adopting elements of a territorial tax system, imposing a one-time transition tax on all undistributed earnings and profits of Reducing the U.S. corporate income tax rate Limiting interest deductions Permitting immediate expensing of certain capital expenditures certain U.S.-owned foreign corporations Revising the rules governing net operating losses and the rules governing foreign tax credits Repealing the deduction of certain performance-based compensation paid to an expanded group of executive officers Introducing new anti-base erosion provisions. • • • Many of these changes were effective immediately, without any transition periods or grandfathering for existing transactions. The legislation was unclear in certain respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the U.S. Department of Treasury and the Internal Revenue Service, any of which could reduce or increase certain impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxes, which often use federal taxable income as a starting point for computing state and local tax liabilities. While some of the changes made by the tax legislation may adversely affect us in one or more reporting periods and prospectively, other changes may be beneficial on a going-forward basis. 15 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. We have generally been successful in negotiating acceptable agreements with the unions without experiencing material work stoppages. However, if we fail to negotiate acceptable new 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 • • Asset or portfolio sale decisions by management. Events related to particular customers or asset types Deterioration of conditions in the global capital markets or negative changes in our credit ratings may limit our ability to secure financing and may increase our borrowing costs. We rely largely on banks and the capital markets to fund our operations and contractual commitments, including the issuance of long-term debt instruments and commercial paper. 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 secure 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. 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 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 rail growth and expansion into select emerging markets as a means to grow and diversify earnings. 16 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 • 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. Our rail and marine 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 rail and marine operations are subject to various laws, rules, and regulations administered by authorities in jurisdictions where we do business. In North America, our railcar fleet and operations are subject to safety, operations, maintenance, and mechanical standards, rules, and regulations enforced by various federal and state agencies and industry organizations, including the U.S. Department of Transportation, the Federal Railroad Administration, the Pipeline and Hazardous Materials Safety Administration of the U.S. Department of Transportation, Transport Canada, and the Association of American Railroads. State and provincial agencies regulate some health and safety matters related to rail operations not otherwise preempted by federal law. Our business and our railcar fleet may be adversely impacted by new rules or regulations, or changes to existing rules or regulations, which could require additional maintenance or substantial modification or refurbishment of our railcars, or could make certain types of railcars inoperable or obsolete or require them to be phased out prior to the end of their useful lives. In addition, violations of these rules and regulations can result in substantial fines and penalties, including potential limitations on operations or forfeitures of assets. Similarly, our marine assets and operations are subject to rules and regulations relating to safety, U.S. citizen ownership requirements, emissions, ballast discharges, and other environmental and operational matters enforced by various federal and state agencies, including the Maritime Administration of the U.S. Department of Transportation, the U.S. Coast Guard, and the U.S. Environmental Protection Agency. If we fail to comply with these rules and regulations, we could be prohibited from operating or leasing marine assets in the U.S. market, and under certain circumstances, could incur severe fines and penalties, including potential limitations on operations or forfeitures of assets. In addition, our foreign operations are subject to the jurisdiction of authorities in countries where we do business. If we fail to comply with these laws, rules, and regulations, or if they change in the future, the use of our assets could be restricted, or the economic value of our assets may be reduced. These restrictions or reductions could lead to loss of revenue or cause us to incur significant expenses to comply with laws, rules, and regulations, thereby increasing operating expenses. Certain changes to or actions by authorities under existing laws, rules, and regulations, or actions, could result in the obsolescence of various assets or impose compliance costs that are significant enough to render those assets economically obsolete. 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, 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. 17 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 railcar may be liable for environmental damage, cleanup or other costs in the event of a spill or discharge of material from a railcar without regard to the owner’s fault. We routinely assess environmental liabilities, including our potential obligations and commitments for remediation of contaminated sites and the possible amount of recoveries from other responsible parties. Due to the regulatory complexities, risk of unidentified contaminants on our properties, and the potential liability for the operations of our lessees, it is possible environmental and remediation costs may be materially different from the costs we have estimated. There can be no assurance that we will continue to pay dividends or repurchase shares of our common stock at current levels. Although we have paid regular cash dividends for 100 consecutive years and conduct periodic share repurchase programs, 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 assets such as railcars and marine vessels. The carrying value of these assets in 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 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 and marine assets. A pronounced reduction in customer demand or change in customers’ preferred method of product transportation could result in the economic obsolescence of the assets leased by those customers. 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 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. 18 We are subject to the inherent risks of our affiliate investments. We are indirectly exposed to risks through our ownership interests in affiliates, as our affiliates may experience many of the same risks discussed in this “Risk Factors” section. Rolls-Royce manages our RRPF affiliates, and we sometimes retain third parties to manage assets we own directly, such as our ocean-going vessels. Poor business or financial results of these affiliates, or the third parties who manage, operate, or invest along with us in these affiliates, could negatively impact our financial results. Additionally, when a third party manages or operates an affiliate or asset, we may not have control over operational matters related to the affiliate or asset, which could result in actions that have an adverse economic impact on the affiliate, the asset, or us or could expose us to potential liability. We may be affected by climate change or market or regulatory responses to climate change. Changes in laws, rules, and regulations, or actions by authorities under existing laws, rules, or regulations, to address greenhouse gas emissions and climate change could negatively impact our customers and business. For example, restrictions on emissions could significantly increase costs for our customers whose production processes require significant amounts of energy. Customers’ increased costs could reduce their demand to lease our assets. In addition, railcars in our fleet that are used to carry fossil fuels, such as coal and petroleum, could see reduced demand if new government regulations mandate a reduction in fossil fuel consumption. New government regulations could also increase our operating costs and compliance with those regulations could be costly. Potential consequences of laws, rules, or regulations addressing climate change 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. Four shareholders collectively control more than 50% 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. 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 (including changes to federal tax law as a result of the Tax Cuts and Jobs Act of 2017), 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. 19 We cannot predict with certainty the impact that inflation or deflation will have 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 railcars and marine vessels against acts of terrorism, which could affect the construction or operation of railcars and marine vessels • A decrease in demand for rail and marine services Lower utilization of rail and marine equipment • Lower rail lease and marine charter rates • Impairments of rail and marine 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 downturn in the commercial aviation industry, which could lead to adverse financial results for our RRPF affiliates. 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. 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. We rely on our IT infrastructure to process, transmit, and store electronic information that is critical to 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. Although we have taken steps to mitigate these risks, we may not be able 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. Although management has concluded that adequate internal control procedures are in place, no system of internal control provides absolute assurance that the financial statements are accurate and free of error. Item 1B. Unresolved Staff Comments None. 20 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, 2017, the locations of our operations were as follows: Mobile Units Camp Minden, Louisiana Crown Point, Indiana Donaldsonville, Louisiana Galena Park, Texas Lake Charles, Louisiana Lakeland, Florida Macon, Georgia Olympia, Washington Sioux City, Iowa Clarkson, Ontario Edmonton, Alberta Montreal, Quebec Quebec City, Quebec Red Deer, Alberta Sarnia, Ontario Customer Site Locations Płock, Poland Business Offices Chicago, Illinois Houston, Texas Burlington, Ontario Calgary, Alberta Mexico City, Mexico Business Offices Düsseldorf, Germany Hamburg, Germany Leipzig, Germany Moscow, Russia Gurgaon, India Paris, France Vienna, Austria Warsaw, Poland GATX Headquarters Chicago, Illinois Rail North America Major Maintenance Facilities Colton, California Hearne, Texas Waycross, Georgia Montreal, Quebec Moose Jaw, Saskatchewan Red Deer, Alberta Maintenance Facilities Kansas City, Kansas Plantersville, Texas Terre Haute, Indiana Sarnia, Ontario Customer Site Locations Catoosa, Oklahoma Donaldsonville, Louisiana Freeport, Texas Geismar, Louisiana Yazoo City, Mississippi Rail International Major Maintenance Facilities Hannover, Germany Ostróda, Poland American Steamship Company Duluth, Minnesota Toledo, Ohio Williamsville, New York Portfolio Management Chicago, Illinois 21 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. 22 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 1,732 common shareholders of record as of January 31, 2018. The following chart shows the reported high and low sales price of our common shares and the dividends declared per share for each of the quarters in 2017 and 2016: Stock Price Range and Dividends $64.17 $62.30 $65.54 $65.18 $64.28 $50.66 $50.80 $47.98 $56.67 $57.40 $58.38 $56.54 $41.98 $40.83 $42.65 $35.12 $0.40 $0.40 $0.40 $0.40 $0.42 $0.42 $0.42 $0.42 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Stock Price High Stock Price Low Dividends Issuer Purchases of Equity Securities On January 29, 2016, our board of directors authorized 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. During 2017, we repurchased 1.7 million shares for $100.0 million under this program. As of December 31, 2017, $80.0 million remained available under the repurchase authorization. On January 26, 2018, our board of directors approved an additional share repurchase authorization of $170 million, bringing GATX’s aggregate available repurchase authorization to $250 million. 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. The following is a summary of common stock repurchases completed by month during the fourth quarter of 2017: Issuer Purchases of Equity Securities (a) (b) (c) Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) October 1, 2017 - October 31, 2017 . . . . . . . . November 1, 2017 - November 30, 2017 . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,300 408,230 426,530 $ $ $ 59.68 58.56 58.61 $ $ 18,300 408,230 426,530 103.9 80.0 23 Equity Compensation Plan Information as of December 31, 2017: Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in Column (a)) (c) Plan Category Equity Compensation Plans Approved by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,328,861 (1) $ 50.07 (2) Equity Compensation Plans Not Approved by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,328,861 4,119,061 — 4,119,061 (1) Consists of 966,115 stock appreciation rights, 756,788 non-qualified stock options, 211,038 performance shares, 186,757 restricted stock units and 208,163 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. 24 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, 2017, 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, 2012, and that all dividends were reinvested. GATX Common Stock Performance Graph GATX, S&P 500, S&P MidCap 400, and Russell 3000 s n r u t e R e v i t a r a p m o C $225 $200 $175 $150 $125 $100 $75 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 GATX S&P 500 S&P MidCap 400 Russell 3000 GATX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100.00 100.00 S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00 S&P MidCap 400 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00 Russell 3000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123.55 132.36 133.44 133.55 $ 139.21 150.43 146.42 150.29 $ 106.15 152.51 143.24 151.01 $ 158.89 170.70 172.89 170.19 $ 164.77 207.92 200.93 206.09 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 25 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. 2017 2016 2015 2014 2013 Results of Operations Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,376.9 54.1 Net gain on asset dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55.9 Share of affiliates’ pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . Net income (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502.0 Net income, excluding tax adjustments and other items $ 1,418.3 98.0 53.1 257.1 $ 1,449.9 79.2 45.4 205.3 $ 1,451.0 87.2 67.8 205.0 $ 1,321.0 85.6 92.3 169.3 (non-GAAP) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185.0 235.9 234.9 205.0 164.8 Per Share Data Basic earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings, excluding tax adjustments and other items (non-GAAP) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Condition Operating assets and facilities, net of accumulated 12.95 12.75 4.70 1.68 6.35 6.29 5.77 1.60 4.76 4.69 5.37 1.52 4.55 4.48 4.48 1.32 3.64 3.59 3.50 1.24 depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,192.1 441.0 7,422.4 435.7 4.3 4,384.2 1,792.7 Investments in affiliated companies . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Off-balance sheet assets (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt and capital lease obligations . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Data Average number of common shares and common share $ 5,804.7 387.0 7,105.4 459.1 3.8 4,268.1 1,347.2 $ 5,698.4 348.5 6,894.2 495.5 7.4 4,196.8 1,280.2 $ 5,688.0 357.7 6,919.9 617.8 72.1 4,184.5 1,314.0 $ 5,070.3 354.3 6,535.5 904.4 23.6 3,833.3 1,397.0 equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities (2) . . . . . . . . . . . . . . . . $ Portfolio proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Portfolio investments and capital additions . . . . . . . . . . . . . . . . . $ Recourse leverage (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on equity (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on equity, excluding tax adjustments and other items $ $ $ 39.4 496.8 165.6 603.4 2.5 32.0% $ $ $ 40.9 629.4 223.7 620.7 3.3 19.6% 43.8 541.8 482.2 714.7 3.5 15.8% 45.8 458.4 $ $ 264.0 $ 1,030.5 3.5 15.1% $ $ $ 47.1 411.4 385.3 859.6 3.0 12.8% (non-GAAP) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1% 18.0% 18.1% 15.1% 12.5% (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. In 2017, we adopted a new accounting standard requiring the reclassification of certain cash receipts and payments in the statement of cash flows. The standard was adopted on a retrospective basis, and as a result, net cash provided by operating activities has been restated for all prior years presented. The impact of this change was not material to our financial statements. (2) (3) Excluding the impact of the Tax Cuts and Jobs Act enacted in 2017, leverage would be 3.1 for 2017. 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. 26 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, American Steamship Company (“ASC”), and Portfolio Management. 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 Form10-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 components to the most comparable GAAP components, 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 (in millions, except per share data): Segment Revenues Rail North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rail International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Management Segment Profit Rail North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rail International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Management Less: Selling, general and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unallocated interest (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, including eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes ($12.0, $5.7 and ($0.5) related to affiliates’ earnings) Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income, excluding tax adjustments and other items (non-GAAP) . . . . . . . . . . . . . . Diluted earnings per share (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per share, excluding tax adjustments and other items (non-GAAP) Return on equity (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on equity, excluding tax adjustments and other items (non-GAAP) . . . . . . . . . . 2017 2016 2015 $ 977.4 197.1 172.5 29.9 $ 1,018.5 189.0 154.2 56.6 $ 1,006.8 180.4 170.2 92.5 $ 1,376.9 $ 1,418.3 $ 1,449.9 $ $ $ $ $ $ $ $ $ $ 299.3 68.8 24.5 56.3 448.9 181.5 (8.5) 5.6 (231.7) 502.0 185.0 12.75 4.70 32.0% 13.1% $ $ $ $ $ 321.9 63.0 10.1 136.9 531.9 174.7 (4.8) 3.5 101.4 257.1 235.9 6.29 5.77 19.6% 18.0% 379.5 70.1 15.1 49.8 514.5 192.4 5.3 1.1 110.4 205.3 234.9 4.69 5.37 15.8% 18.1% Investment Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 603.4 $ 620.7 $ 714.7 27 2017 Summary Net income was $502.0 million, or $12.75 per diluted share, for 2017 compared to $257.1 million, or $6.29 per diluted share, for 2016, and $205.3 million, or $4.69 per diluted share, for 2015. Results for 2017 include a net benefit of $317.0 million from tax adjustments and other items, compared to a net benefit of $21.2 million in 2016 and a net negative impact of $29.6 million in 2015 (see “Non-GAAP Financial Measures” at the end of this item for further details). • • • • At Rail North America, segment profit was lower in 2017 attributable to a decrease in lease revenue, resulting from lower lease rates and fewer cars on lease, as well as higher interest expense associated with investment volume. This decrease was partially offset by the absence of impairments recorded in the prior year on certain cars in flammable service. At Rail International, segment profit in 2017 increased primarily due to higher lease revenue from more cars on lease and lower maintenance expense. At ASC, segment profit was higher in 2017, largely due to higher volume and a favorable commodity mix, as well as increased operational efficiency. At Portfolio Management, segment profit decreased in 2017, primarily due to lower residual sharing gains on managed portfolio sales, the absence of contributions from sold assets, and lower aggregate marine operating results on retained assets, partially offset by higher earnings at our Rolls-Royce Partners Finance affiliates. Total investment volume was $603.4 million in 2017, compared to $620.7 million in 2016, and $714.7 million in 2015. 2018 Outlook The North American railcar leasing market experienced its third consecutive year of a downturn in 2017 as large numbers of idle existing railcars, combined with the entry of newly manufactured railcars, resulted in continued oversupply across the industry. We anticipate this oversupply situation will continue in 2018. Certain industry data points suggest that the railcar leasing market may be slowly improving. While lease rates appear to have increased somewhat from market low points, there is no apparent demand catalyst to drive material improvements in lease pricing in the near term. Despite these difficult market conditions, we believe that we are well positioned to benefit from fleet actions taken over the past few years, including optimizing the fleet through railcar sales and strategic pricing and lease term management, which have enabled us to maintain high utilization. In addition, we expect to benefit from improved efficiency of our maintenance network. In 2018, we have already placed a substantial portion of the railcars to be delivered from our supply agreement, and a relatively modest number of railcar leases are scheduled for expiration in 2018. Our strong balance sheet also offers us flexibility to pursue secondary market acquisitions if attractive opportunities arise. • We expect Rail North America’s segment profit in 2018 to decrease from 2017. We plan to continue to invest in additional railcars during 2018; however, lease revenue is expected to decline, as the impact of higher rates on expiring leases will more than offset the positive impact of new cars added to the fleet. In addition, maintenance expense is expected to increase due to more scheduled maintenance events, as well as increased costs related to boxcars we expect to place into service during 2018. Finally, we expect remarketing income to be higher than 2017. • We anticipate Rail International’s segment profit in 2018 to be relatively flat in local currency, but will increase in U.S. dollars as a result of a stronger euro. Lease revenue is expected to be higher in 2018, resulting from more active railcars in the fleet, partially offset by lower lease rates. This increase will be offset by an increase in expected maintenance expense, driven by higher scheduled maintenance events. • We expect ASC’s segment profit in 2018 to be slightly higher than 2017. We anticipate higher revenue, resulting from favorable freight rates, partially offset by reduced volume. In addition, operating expenses are expected to decrease due to fleet efficiencies. • We believe Portfolio Management’s segment profit in 2018 will be lower than 2017. Strong operating results at the Rolls- Royce Partners Finance affiliates are expected to continue; however, this will be more than offset by lower anticipated residual sharing gains from our managed portfolio. 28 Segment Operations Segment profit is an internal performance measure used by the Chief Executive Officer to assess the performance of each segment in a given period. Segment profit includes all revenues, pre-tax earnings from affiliates, and net gains on asset dispositions that are attributable to the segments, as well as expenses that management believes are directly associated with the financing, maintenance, and operation of the revenue earning assets. 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. We allocate debt balances and related interest expense to each segment based upon predetermined debt to equity leverage ratios. Due to the changes in the composition of our segments, we modified segment leverage levels for 2016. The leverage levels for 2017 and 2016 were 5:1 for Rail North America, 3:1 for Rail International, 1.5:1 for ASC, and 1:1 for Portfolio Management. For 2015, the leverage levels were 5:1 for Rail North America, 2:1 for Rail International, 1.5:1 for ASC, and 3:1 for Portfolio Management. We believe that by using this leverage and interest expense allocation methodology, each operating segment’s financial performance reflects appropriate risk-adjusted borrowing costs. Segment Summary RAIL NORTH AMERICA Challenging conditions continued in the North America railcar leasing market in 2017 due to the oversupply of existing railcars and continued delivery of new cars into the market. Despite this difficult environment, Rail North America has been successful in maintaining high utilization of its railcars across all tank and freight types. At December 31, 2017, Rail North America’s wholly owned fleet, excluding boxcars, consisted of approximately 103,700 cars. Fleet utilization, excluding boxcars, was 98.2% at the end of 2017, compared to 98.9% at the end of 2016, and 99.1% at the end of 2015. Fleet utilization for approximately 16,400 boxcars was 92.6% at the end of 2017 compared to 93.8% at the end of 2016, and 97.7% at the end of 2015. During 2017, an average of approximately 102,600 railcars, excluding boxcars, were on lease, compared to 103,900 in 2016, and 106,000 in 2015. The decrease in railcars on lease in the current year is largely due to railcars that were sold or scrapped in an effort to optimize the composition of our fleet. During the year, the renewal rate change of the Lease Price Index (the “LPI”, see definition below) was negative 28.2%, compared to negative 20.3% in 2016 and positive 32.2% in 2015. The decline in demand and resulting decline in lease rates was broad-based, but was particularly severe among cars serving the energy markets. Lease terms on renewals for cars in the LPI averaged 33 months in 2017, compared to 32 months in 2016, and 54 months in 2015. Additionally, the renewal success rate was 74.7% in 2017, compared to 66.7% in 2016, and 81.4% in 2015. During 2016, we recorded impairment losses of $31.2 million, including $29.8 million related specifically to certain railcars in flammable service that we believed had been permanently and negatively impacted by regulatory changes. In 2014, we entered into a long-term supply agreement with Trinity Rail Group, LLC (“Trinity”) a subsidiary of Trinity Industries that took effect in mid-2016. Under the terms of that agreement, we may order up to 8,950 newly built railcars over a four-year period from March, 2016 through March, 2020. We may order either tank or freight cars; however, we expect that the majority of the order will be for tank cars. As of December 31, 2017, 5,249 railcars have been ordered, of which 3,032 railcars have been delivered. As of December 31, 2017, leases for approximately 13,900 railcars in our term lease fleet and approximately 2,400 boxcars are scheduled to expire in 2018. These amounts exclude railcars with leases expiring in 2018 that have already been renewed or assigned to a new lessee. 29 The following table shows Rail North America’s segment results for the years ended December 31 (in millions): Revenues Lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 899.9 77.5 $ 935.1 83.4 $ 930.9 75.9 Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 977.4 1,018.5 1,006.8 2017 2016 2015 Expenses Maintenance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income (Expense) Net gain on asset dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of affiliates’ pre-tax (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265.0 239.4 60.7 28.7 593.8 45.2 (121.2) (5.9) (2.4) 266.5 231.8 67.6 34.1 600.0 16.6 (110.1) (3.6) 0.5 264.2 215.1 82.2 26.2 587.7 67.2 (102.1) (5.2) 0.5 Segment Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 299.3 $ 321.9 $ 379.5 Investment Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 460.9 $ 495.6 $ 524.5 The following table shows the components of Rail North America’s lease revenue for the years ended December 31 (in millions): Railcars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Boxcars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Locomotives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 785.1 75.7 39.1 $ 815.0 80.6 39.5 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 899.9 $ 935.1 $ 809.7 83.6 37.6 930.9 2017 2016 2015 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. 30 e g n a h C e t a R e s a e L l a w e n e R g v A 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Lease Price Index 38.8% 66 34.5% 62 32.2% 54 (20.3)% 32 (28.2)% 33 2013 2014 2015 2016 2017 Average Renewal Lease Rate Change Average Renewal Lease Term 80 70 60 50 40 30 ) s h t n o m ( m r e T l a w e n e R g v A Rail North America Fleet Data The following table shows fleet activity for Rail North America railcars, excluding boxcars, for the years ended December 31: 2017 2016 2015 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cars added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cars scrapped . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cars sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,522 3,442 (2,900) (1,334) 106,146 3,519 (2,479) (2,664) 107,343 3,762 (1,445) (3,514) Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilization rate at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Active railcars at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average (monthly) active railcars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,730 104,522 106,146 98.2% 98.9% 99.1% 101,849 102,600 103,329 103,900 105,164 105,987 31 Rail North America Fleet, excluding Boxcars 100.0% 97.5% 95.0% 92.5% 90.0% n o i t a z i l i t U e z i S t e e l F 110,000 105,000 100,000 95,000 90,000 2013 2014 2015 2016 2017 Active Fleet Idle Fleet Utilization The following table shows fleet statistics for Rail North America boxcars for the years ended December 31: Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilization rate at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 16,398 2016 17,706 2015 18,429 92.6% 93.8% 97.7% The following table shows fleet activity for Rail North America locomotives for the years ended December 31: Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Locomotives added, net of scrapped or sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilization rate at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Active locomotives at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average (monthly) active locomotives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 660 5 665 92.5% 615 623 637 23 660 93.3% 616 605 603 34 637 93.3% 584 589 2017 2016 2015 32 Segment Profit In 2017, segment profit of $299.3 million decreased 7.0% compared to $321.9 million in 2016. The decrease was driven by lower lease revenue, partially offset by the absence of impairment losses recorded in 2016 for certain railcars in flammable service. In 2016, segment profit of $321.9 million decreased 15.2% compared to $379.5 million in 2015. The decrease was driven by lower asset disposition gains, which includes the impairment losses noted above, and higher depreciation expense, partially offset by higher lease revenue and fee income. Revenues In 2017, lease revenue decreased $35.2 million, or 3.8%, primarily due to lower average lease rates and fewer railcars on lease. Other revenue decreased $5.9 million, largely a result of lower lease termination fees. Other revenue in 2016 included a lease termination fee of approximately $10.0 million for a penalty imposed by GATX for allowing a customer to return 200 crude oil railcars prior to the contractual end of an existing lease. The majority of these railcars were subsequently placed with other GATX customers. Other revenue in 2017 included $7.8 million of compensation for damage to returned railcars. The expenses to repair these railcars will be recognized as incurred. In 2016, lease revenue increased $4.2 million, or 0.5%, primarily due to revenue from new cars added to the fleet and higher utilization revenue, partially offset by the impact of fewer cars on lease. Other revenue increased $7.5 million, due to higher lease termination fees, including the $10.0 million fee noted above. Expenses In 2017, maintenance expense decreased $1.5 million, primarily due to lower expenses for the boxcar fleet and lower repairs performed by the railroads, offset by an increase in costs associated with cars assigned to new lessees. Depreciation expense increased $7.6 million due to new railcar investments and the purchase of railcars previously on operating leases. Operating lease expense decreased $6.9 million, resulting from the purchase of railcars previously on operating leases in both 2017 and 2016. Other operating expense decreased $5.4 million, due to lower switching, storage, and freight costs resulting from fewer railcars coming off lease and being moved into storage in the current year. In 2016, maintenance expense increased $2.3 million, primarily due to higher repair costs across the fleet, partially offset by lower repairs performed by the railroads. Depreciation expense increased $16.7 million, largely due to new railcar investments and the purchase of railcars previously on operating leases. Operating lease expense decreased $14.6 million, as a result of purchases of railcars previously on operating leases in both 2016 and 2015. Other operating expense increased $7.9 million, primarily due to higher switching, storage, and freight costs as a result of more railcars coming off lease and being moved into storage. Other Income (Expense) In 2017, net gain on asset dispositions increased $28.6 million, largely due to the impact of lower impairments in the current year. We recorded impairment losses of $4.6 million in 2017, compared to $31.2 million in 2016. In 2016, impairment losses included $29.8 million related specifically to certain railcars in flammable service that we believed had been permanently and negatively impacted by regulatory changes. Excluding impairment losses in each year, net gain on asset dispositions in 2017 decreased due to fewer railcars sold, offset by higher scrapping gains, resulting from more railcars scrapped and higher scrap prices. 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 timing of disposition gains is dependent on a number of factors and will vary from year to year. Net interest expense increased $11.1 million, due to a higher average interest rate and a higher average debt balance. Other expense in 2017 was comparable to the same period in 2016. Share of affiliates’ pre-tax income was lower in 2017, driven by an impairment loss recognized with respect to our Adler investment to reflect a decline in the value of certain railcars in that fleet. In 2016, net gain on asset dispositions decreased $50.6 million due to a combination of higher impairments of railcars, primarily railcars in flammable service, and lower disposition gains, as fewer railcars were sold in 2016. Net interest expense increased 33 $8.0 million, due to a higher average debt balance and a higher average interest rate. Other expense in 2016 decreased $1.6 million compared to 2015, primarily due to a $1.9 million gain from the sale of an investment security in 2016. Investment Volume During 2017, investment volume was $460.9 million compared to $495.6 million in 2016, and $524.5 million in 2015. We acquired approximately 3,613 railcars in 2017, compared to 3,465 railcars in 2016, and 3,790 railcars in 2015. North American Rail Regulatory Matters In 2015, the Pipeline and Hazardous Materials Safety Administration of the U.S. Department of Transportation (“PHMSA”) issued regulations that established new design standards for tank cars in flammable liquids service. In addition to setting standards for newly built tank cars, the PHMSA regulations established standards for modifying existing tank cars in certain flammable liquids service and deadlines for modifying or removing those cars from service. The deadlines range from January 2018 to May 2029, depending on the type of car and the type of commodity carried. The regulations were subsequently modified by legislation adopted by Congress, and in August 2016, PHMSA adopted final regulations that incorporated the legislative mandates. Transport Canada (“TC”) also issued rules establishing revised design standards for tank cars carrying flammable liquids in Canada (the “Canadian Rules”). The Canadian Rules established standards for newly built tank cars, standards for modifying existing cars flammable liquids service, and deadlines for modifying or removing cars from service. The Canadian deadlines range from November 2016 to May 2025, depending on the type of car and the type of commodity carried. We have a fleet of approximately 120,000 railcars in North America, including approximately 13,450 tank cars currently used to transport flammable liquids that are affected by the new rules, of which approximately 3,900 are moving crude oil and ethanol. Over 97% of our affected tank cars have a compliance deadline of 2023 or later. We expect to modify some of the most modern of our affected tank cars to comply with the new standards. However, for the majority of the affected cars, we currently anticipate retiring, redeploying, or selling them rather than performing retrofits. Segment Summary RAIL INTERNATIONAL Rail International, composed primarily of GATX Rail Europe (“GRE”), produced solid operating results in 2017. Despite market pressure, GRE was successful in maintaining high fleet utilization. Railcar utilization for GRE was 96.8% at the end of 2017, compared to 95.6% at the end of 2016, and 95.8% at the end of 2015. GRE’s results in 2017 benefited from lower maintenance expense, primarily due to lower wheelset costs, which were higher in 2016 due to a refurbishment program to address anti-corrosion paint issues on certain wheelsets. Rail India continued to focus on investment opportunities and diversification of its fleet, as well as developing relationships with customers, suppliers and the Indian Railways. In 2017, Rail India added 275 railcars, compared to zero in 2016 and 410 railcars in 2015. As of December 31, 2017, Rail India had entered into contracts to acquire approximately 350 additional railcars in 2018 and expects continued fleet growth and diversification. Rail Russia focused on managing its fleet and developing relationships with new customers. In 2017, Rail Russia did not add any new railcars, compared to 20 railcars added in 2016 and 150 railcars added in 2015. As of December 31, 2017, Rail Russia had commitments to acquire approximately 165 railcars in 2018 and plans to further expand both its fleet and customer base in 2018. 34 The following table shows Rail International’s segment results for the years ended December 31 (in millions): 2017 2016 2015 Revenues Lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190.3 $ 6.8 182.0 $ 7.0 Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197.1 189.0 Expenses Maintenance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income (Expense) Net gain on asset dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (expense) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of affiliates’ pre-tax loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.1 48.9 4.7 94.7 3.1 (33.4) (3.2) (0.1) 47.2 45.5 5.3 98.0 1.1 (29.7) 0.8 (0.2) Segment Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68.8 Investment Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90.9 $ $ 63.0 87.1 $ $ 172.9 7.5 180.4 39.6 43.7 5.1 88.4 6.8 (22.4) (6.0) (0.3) 70.1 148.0 The following table shows fleet activity for GRE railcars for the years ended December 31: Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cars added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cars scrapped or sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilization rate at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Active railcars at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average (monthly) active railcars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 23,122 871 (827) 23,166 2016 22,923 879 (680) 23,122 2015 22,451 1,421 (949) 22,923 96.8% 95.6% 95.8% 22,422 22,137 22,108 21,869 21,969 21,598 35 e z i S t e e l F 24,000 21,000 18,000 15,000 12,000 GRE Fleet 100.0% 97.5% 95.0% 92.5% 90.0% n o i t a z i l i t U 2013 2014 2015 2016 2017 Active Fleet Idle Fleet Utilization Foreign Currency Rail International’s reported results of operations are impacted by fluctuations in the exchange rates of the foreign currencies in which it conducts business, primarily the euro. In 2017, a stronger euro positively impacted lease revenue by approximately $4.5 million and segment profit, excluding other income (expense), by approximately $2.5 million compared to 2016. In 2016, fluctuations in the value of the euro did not have a meaningful impact on revenue or segment profit compared to the prior year. Segment Profit In 2017, segment profit of $68.8 million increased 9.2% compared to $63.0 million in 2016. The increase was largely due to higher lease revenue and lower maintenance expense, as well as the positive impacts of foreign exchange rates. In 2016, segment profit of $63.0 million decreased 10.1% compared to $70.1 million in 2015. The decrease was largely due to higher maintenance expense, primarily as a result of higher wheelset costs, and the absence of a gain recognized on the sale of a workshop in 2015, partially offset by higher lease revenue and lower net legal defense costs. Revenues In 2017, lease revenue increased $8.3 million, or 4.6%, due to more cars on lease, as well as the positive impacts of foreign exchange rates. Other revenue was comparable to the prior year. In 2016, lease revenue increased $9.1 million, or 5.3%, primarily due to more cars on lease. 36 Expenses In 2017, maintenance expense decreased $6.1 million, primarily due to lower wheelset costs and reimbursements from manufacturers on previously incurred wheelset costs, partially offset by the negative impacts of foreign exchange rates. Depreciation expense increased $3.4 million, driven by the impact of new cars added to the fleet, as well as the negative impacts of foreign exchange rates. Other operating expense was comparable to prior year. In 2016, maintenance expense increased $7.6 million, primarily due to the costs of wheelset replacements related to the refurbishment program, as discussed above, and the higher costs associated with railcars undergoing regulatory compliance maintenance. Depreciation expense increased $1.8 million, driven by the impact of new cars added to the fleet. Other operating expense was comparable to prior year. Other Income (Expense) In 2017, net gain on asset dispositions increased $2.0 million, primarily due to higher scrapping gains resulting from more railcars scrapped. Net interest expense increased $3.7 million, due to a higher average interest rate and a higher average debt balance. Other expense increased $4.0 million, driven by the unfavorable impact of changes in foreign exchange rates on non-functional currency items and derivatives. In 2016, net gain on asset dispositions decreased $5.7 million, primarily due to the absence of a gain recognized on the sale of a workshop in 2015 and lower railcar scrapping gains as a result of fewer railcars scrapped in 2016. Net interest expense increased $7.3 million, largely due to a higher average debt balance, resulting from an increase in segment leverage in 2016, partially offset by a lower average interest rate. Other expense decreased $6.8 million, largely due to lower net legal costs resulting from insurance reimbursements received in 2016 for previously expensed legal defense costs. Investment Volume Investment volume was $90.9 million in 2017, $87.1 million in 2016, and $148.0 million in 2015. During 2017, we acquired approximately 871 railcars compared to 879 railcars in 2016, and 1,980 railcars in 2015. Segment Summary ASC ASC’s operations benefited from strong demand for iron ore spot business, as well as favorable sailing conditions in 2017. ASC carried 27.8 million net tons of freight in 2017 compared to 25.4 million net tons in 2016 and 26.5 million net tons in 2015. During 2017, ASC sold three of its vessels for total proceeds of $8.3 million, resulting in a net loss of $1.8 million. In addition, ASC returned two vessels that were previously leased. 37 The following table shows ASC’s segment results for the years ended December 31 (in millions): 2017 2016 2015 Revenues Lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Marine operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses Maintenance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marine operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 $ 4.2 $ 168.4 172.5 22.2 106.2 12.0 1.8 142.2 150.0 154.2 18.6 96.7 12.9 6.0 134.2 Other Income (Expense) Net loss on asset dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.9) (5.2) 1.3 — (4.5) (5.4) Segment Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24.5 $ 10.1 $ Investment Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total Net Tons Carried . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.0 $ 27.8 9.1 $ 25.4 4.1 166.1 170.2 22.3 107.2 14.3 5.2 149.0 (0.1) (5.3) (0.7) 15.1 20.3 26.5 Tonnage by Commodity ) 0 0 0 ( s n o T t e N 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 s y a D g n i t a r e p 2,000 O 6,000 5,000 4,000 3,000 1,000 0 2015 2016 2017 Iron Ore Other Coal Limestone Aggregate Operating Days 38 Segment Profit In 2017, segment profit of $24.5 million increased 142.6% compared to $10.1 million in 2016. In 2017, ASC operated 12 vessels compared to 11 vessels in 2016. The increase in segment profit was primarily due to higher volume and a favorable commodity mix, as well as the absence of $5.0 million of expenses recorded in 2016 related to an accrual for asbestos-related litigation and costs associated with the scheduled return of a leased vessel. In 2016, segment profit of $10.1 million decreased 33.1% compared to $15.1 million in 2015. The decrease was driven by the $5.0 million of expenses recorded in 2016 noted above. In addition, lower demand across most commodities and fewer higher-margin, long-haul shipments of iron ore negatively impacted segment profit, which was partially offset by lower operating costs as a result of deploying two fewer vessels throughout most of 2016. Revenues In 2017, marine operating revenue increased $18.4 million, or 12.3%, primarily due to higher volume, higher freight rates and a favorable mix of commodities shipped. Higher fuel revenue, which is offset in marine operating expense, also contributed to the variance. The terms of our contracts provide that a substantial portion of fuel costs are passed on to customers. In 2016, marine operating revenue decreased $16.1 million, or 9.7%, primarily due to lower shipping volume as a result of decreased demand, as well as fewer long-haul shipments of various commodities. In addition, lower fuel revenue, which is offset in marine operating expense, contributed to the variance. Expenses In 2017, maintenance expense increased $3.6 million, due to more winter work and higher operating repairs. Marine operating expense increased $9.5 million, largely driven by the impact of an additional vessel in operation and more overall operating days, as well as higher fuel costs. In 2016, maintenance expense decreased $3.7 million, due to fewer operating vessels and lower operating repairs. Marine operating expense decreased $10.5 million, largely driven by lower fuel costs, two fewer vessels deployed in 2016, and more efficient operations. Operating lease expense in 2017, 2016, and 2015 included rent for the lease of ASC’s tug-barge vessel that was returned at the beginning of 2017 and rent for a vessel that was returned in December 2017. Other Income (Expense) In 2017, other income (expense) improved by $6.7 million, due to the absence of $5.0 million of expenses recorded in 2016 related to an accrual for asbestos-related litigation and costs associated with the scheduled return of a leased vessel in 2017. In 2016, other expense increased $4.7 million, driven by the $5.0 million of expenses noted above. Investment Volume ASC’s investments in each of 2017, 2016, and 2015 consisted of structural and mechanical upgrades to our vessels. Segment Summary PORTFOLIO MANAGEMENT Portfolio Management’s segment profit includes income from our investment in the Rolls-Royce & Partners Finance companies (collectively the “RRPF affiliates”). The RRPF affiliates are a group of sixteen 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. Segment profit included earnings from the RRPF affiliates of $57.3 million for 2017, $51.8 million for 2016, and $65.5 million for 2015. The 39 RRPF affiliates owned 432 aircraft engines at the end of 2017 compared to 407 at the end of 2016 and 436 at the end of 2015. Impairment losses recorded for certain aircraft spare engines negatively impacted earnings at the RRPF affiliates in 2016. In 2015, we made the decision to exit the majority of our marine investments, including six chemical parcel tankers (the “Nordic Vessels”), most of our inland marine vessels, and our 50% interest in the Cardinal Marine joint venture. As a result, we recorded impairment losses of $6.7 million and $49.8 million in 2016 and 2015. As of December 31, 2017, we completed the sales of all of the planned marine assets, including our 50% interest in the Cardinal Marine joint venture, and received proceeds of $46.8 million, $59.9 million, and $124.4 million in 2017, 2016, and 2015. These sales resulted in net gains of $1.8 million in 2017, $4.2 million in 2016, and $21.6 million in 2015. Upon completion of these sales, Portfolio Management continues to own other marine assets, consisting primarily of five liquefied gas-carrying vessels (the “Norgas Vessels”). The Norgas Vessels specialize in the transport of pressurized gases and chemicals, such as liquefied petroleum gas, liquefied natural gas, and ethylene, primarily on shorter-term spot contracts for major oil and chemical customers worldwide. In 2016, we also realized residual sharing income of $82.8 million. Proceeds of $49.1 million were recorded as a result of the settlement of a prior year residual sharing dispute. This transaction originated in 2001 and was related to a residual value guarantee we provided on certain rail assets in the U.K. Receipt of the settlement fee concludes our participation in this transaction. Additionally, a customer sold its interest in two leased power plant facilities and, as manager of the leases, we received residual sharing fees of $30.1 million. Portfolio Management’s total asset base was $582.8 million at December 31, 2017, compared to $593.5 million at December 31, 2016, and $636.5 million at December 31, 2015. The following table shows Portfolio Management’s segment results for the years ended December 31 (in millions): 2017 2016 2015 Revenues Lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Marine operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 $ 25.0 1.1 29.9 5.8 $ 49.3 1.5 56.6 Expenses Marine operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income (Expense) Net gain on asset dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of affiliates’ pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.8 7.0 1.0 32.8 7.7 (9.2) 2.3 58.4 32.8 7.0 4.4 44.2 80.3 (8.6) — 52.8 22.2 68.9 1.4 92.5 48.7 17.4 7.1 73.2 5.3 (20.0) — 45.2 Segment Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56.3 $ 136.9 $ 49.8 Investment Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36.6 $ 25.0 $ 18.4 40 s t e s s A d e n w O $800 $600 $400 $200 $0 Investment Portfolio as of 12/31/2017 (in millions) $250 $200 $150 $100 $50 $0 s t e s s A d e g a n a M 2015 2016 2017 Marine Equipment Aircraft Spare Engine Leasing Affiliates Other Managed Assets RRPF Affiliates Engine Portfolio Data The following table shows portfolio activity for the RRPF affiliates’ aircraft spare engines for the years ended December 31: Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Engine acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Engine dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilization rate at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 2016 2015 407 35 (10) 432 94.7% 436 25 (54) 407 94.6% 431 25 (20) 436 96.6% 41 RRPF Affiliates' Aircraft Spare Engine Portfolio e z i S o i l o f t r o P 500 400 300 200 100 0 100.0% 95.0% 90.0% 85.0% 80.0% n o i t a z i l i t U 2015 2016 2017 Leased to Rolls-Royce Leased to Third Party Idle Utilization Segment Profit In 2017, segment profit was $56.3 million compared to $136.9 million in 2016. Segment profit included net gains of approximately $1.8 million in 2017 and net losses of approximately $1.5 million in 2016 associated with the planned exit of marine investments. In addition, segment profit in 2016 included $49.1 million of income from the settlement of a prior year residual sharing dispute. Excluding these items, results for the Portfolio Management segment were $34.8 million lower in 2017, primarily due to lower residual sharing fees from the managed portfolio and lower aggregate marine operating results. The markets in 2017 for the Norgas Vessels experienced substantially lower shipping rates that negatively impacted revenue due to decreased demand and new vessels that have entered the market. These decreases were partially offset by higher RRPF affiliate income. In 2016, segment profit of $136.9 million compared to $49.8 million in 2015. Segment profit in 2016 included income of $49.1 million related to the settlement of a prior year residual sharing dispute. In addition, segment profit in 2016 was impacted by a net loss of approximately $1.5 million associated with the planned exit of the majority of marine investments, compared to a net loss of approximately $28.2 million in 2015. Excluding the impact of these items, segment profit was $11.3 million higher in 2016 primarily due to higher residual sharing fees from the managed portfolio, partially offset by lower RRPF affiliate income. Revenues In 2017, lease revenue decreased $2.0 million, primarily due to the impact of the sales of leased assets in 2016. Marine operating revenue decreased $24.3 million, largely due to lower revenue from the Norgas Vessels resulting from substantially lower shipping rates, as well as the absence of revenue from the Nordic Vessels and other inland marine assets that were sold in 2016 and 2017. In 2016, lease revenue decreased $16.4 million, primarily due to the impact of the sales of leased assets in both years. Marine operating revenue decreased $19.6 million, largely due to the absence of revenue from the Nordic Vessels that were sold during 2015 and 2016. 42 Expenses In 2017, marine operating expense decreased $8.0 million, primarily due to the absence of the Nordic Vessels and other inland marine assets that were sold in 2016 and 2017, partially offset by higher expenses for the Norgas Vessels. Depreciation expense was comparable to 2016. Other operating expense was $3.4 million lower, due to a loss reserve recorded in 2016 in connection with one investment. In 2016, marine operating expense decreased $15.9 million, primarily due to the absence of the Nordic Vessels that were sold during 2015 and 2016, as well as lower expenses from the Norgas Vessels. Depreciation expense decreased $10.4 million, driven by the sale of assets in 2015 and 2016 as well as the impact from the classification of certain assets as held for sale. Other operating expense decreased $2.7 million, primarily due to proceeds received in 2016 for investments that had previously been reserved, lower barge painting expenses, and the absence of fleet manager incentive fees incurred in 2015, partially offset by the loss reserve recorded in 2016 in connection with one investment. Other Income (Expense) In 2017, net gain on asset dispositions decreased $72.6 million. A net gain of $1.8 million was recorded in 2017 compared to a net loss of $2.5 million in 2016 associated with the planned exit of marine investments. In addition, income of $49.1 million was recorded in 2016 from the settlement of a prior year residual sharing dispute. Excluding these items, net gain on asset dispositions decreased $27.8 million primarily due to lower residual sharing fees from the managed portfolio in 2017. Net interest expense increased $0.6 million, primarily due to a higher average interest rate. In 2016, net gain on asset dispositions increased $75.0 million. Income of $49.1 million was recorded in 2016 related to the settlement of a prior year residual sharing dispute. In addition, net gain on asset dispositions in 2016 included a net loss of approximately $2.5 million associated with the planned exit of marine investments, compared to a net loss of approximately $9.2 million in 2015. Excluding these net gains and losses, net gain on asset dispositions increased $19.2 million primarily due to higher residual sharing fees from the managed portfolio in 2016. Net interest expense decreased $11.4 million as a result of a lower average debt balance, resulting from a combination of a lower asset base, a decrease in segment leverage in 2016, and lower average interest rates. In 2017, share of affiliates’ earnings, comprised substantially of the RRPF affiliates, increased $5.6 million, primarily due to higher operating results driven by engines added to the fleet in 2017. Additionally, the absence of asset impairments that were recorded in 2016 were offset by lower net asset disposition gains in 2017. In 2016, share of affiliates’ earnings increased $7.6 million, primarily due to an impairment charge of $19.0 million in 2015 and a net gain on sale of $1.0 million in 2016 associated with the sale of our interest in the Cardinal Marine affiliate. Excluding these items, the share of affiliates’ earnings decreased $12.4 million, primarily due to lower net disposition gains at RRPF attributable to impairment losses incurred on certain aircraft spare engines. Investment Volume Investment volume of $36.6 million in 2017, $25.0 million in 2016, and $18.4 million in 2015 consisted primarily of investments in the RRPF affiliates. 43 OTHER Other comprises selling, general and administrative expenses (“SG&A”), unallocated interest expense, and miscellaneous income and expense not directly associated with the reporting segments and eliminations. The following table shows components of Other for the years ended December 31 (in millions): Selling, general and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unallocated interest (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense (income), including eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 181.5 (8.5) 5.6 $ 174.7 (4.8) 3.5 192.4 5.3 1.1 2017 2016 2015 SG&A, Unallocated Interest and Other During 2017, we terminated the office lease at our corporate headquarters early. As a result, accelerated depreciation on leasehold improvements was recorded in SG&A, and lease termination costs were recorded in other expense (income). Amounts reported in SG&A for 2016 and 2015 also included costs associated with a voluntary early retirement program extended to eligible employees. A pension settlement accounting adjustment of $6.1 million attributable to lump sum payments elected by eligible retirees as part of the program was recorded in 2016, and $9.0 million of benefit costs related to the program were recorded in 2015. In 2017, SG&A of $181.5 million increased $6.8 million from 2016. The increase was due to the impact of the accelerated depreciation expense adjustment noted above, as well as higher compensation and employee benefits costs, partially offset by the absence of the pension settlement accounting adjustment recorded in 2016. In 2016, SG&A of $174.7 million decreased $17.7 million from 2015. The decrease was primarily due to reduced employee costs, as well as lower pension and information technology expenses. Lower benefit costs recorded in 2016 associated with the early retirement program contributed to the decrease. The decrease in pension expense was driven by the change in accounting estimate discussed in “Note 2. Accounting Changes” in Part II, Item 8 of this Form 10-K. Unallocated interest expense (the difference between external interest expense and interest expense allocated to the reporting segments in accordance with assigned leverage targets) in any year is affected by our consolidated leverage position, the timing of debt issuances and investing activities, and intercompany allocations. In 2017, other expense (income), including eliminations increased $2.1 million, attributable to an increase to a litigation accrual recorded in the current year and the early lease termination costs noted above, partially offset by the absence of an environmental remediation accrual recorded in 2016 related to properties sold in prior years. In 2016, other expense (income), including eliminations was primarily composed of the environmental remediation accrual noted above. 44 Consolidated Income Taxes On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted which made broad and complex changes to the U.S. tax laws. In particular, the U.S. corporation income tax rate was reduced to 21% from 35%, and a new territorial tax system was implemented that will affect the future U.S. taxation of earnings repatriated from our foreign subsidiaries and affiliates. Other provisions included an immediate deduction for qualified investments and limitations on the deductibility of interest expense and executive compensation. The Tax Act has had a significant impact on our fourth quarter and full year earnings in 2017, and will impact future periods as well. In 2017, we recorded a one-time non-cash net tax benefit of $315.9 million which represents our provisional estimate of the impact of the Tax Act. This amount includes a net benefit of $371.4 million associated with the re-measurement of our net deferred tax liability utilizing the lower U.S. tax rate offset by a one-time transitional repatriation tax of $57.2 million on certain undistributed earnings of our non-U.S. subsidiaries and affiliates. We expect that the reduction in the U.S. corporate tax rates will favorably impact our consolidated effective tax rate and net income and diluted earnings per share in future periods beginning in 2018; however, based on our expected U.S. tax return filing position, we do not anticipate that the Tax Act will have a material impact on our future cash flows. We will continue to evaluate the provisions of the Tax Act, and the ultimate impact may differ from this provisional estimate, due to, among other things, changes in interpretations and assumptions made by us, additional guidance that may be issued by the Internal Revenue Service and the U.S. Department of the Treasury, and actions that we may take. See “Note 12. Income Taxes” in Part II, Item 8 of this Form 10-K for additional information on income taxes. 45 BALANCE SHEET DISCUSSION Assets Total assets (including on- and off-balance sheet) were $7.9 billion at December 31, 2017, compared to $7.6 billion at December 31, 2016. The increase was primarily driven by an increase in operating assets at Rail North America and Rail International, partially offset by the sales of assets at Rail North America and Portfolio Management that were previously classified as held for sale. In addition to the assets we recorded on our balance sheet, we utilized off-balance sheet assets, primarily railcars, which we leased in pursuant to operating lease agreements. The off-balance sheet assets represent the estimated present value of our committed future operating lease payments. The following table shows on- and off-balance sheet assets by segment as of December 31 (in millions): On- Balance Sheet 2017 Off- Balance Sheet Rail North America . . . . . . . . . . . . . . . . Rail International . . . . . . . . . . . . . . . . . . ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other $ 4,915.0 1,332.9 286.7 582.8 305.0 $ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,422.4 $ 435.7 — — — — 435.7 Gross Receivables $ Total 5,350.7 1,332.9 286.7 582.8 305.0 $ On- Balance Sheet 4,775.6 1,128.7 278.8 593.5 328.8 $ 7,858.1 $ 7,105.4 $ 2016 Off- Balance Sheet $ 456.5 — 2.6 — — 459.1 $ Total 5,232.1 1,128.7 281.4 593.5 328.8 $ 7,564.5 Receivables of $219.5 million at December 31, 2017 decreased $14.1 million from December 31, 2016, primarily due to lower revenue and the timing of payments by customers. Allowance for Losses As of December 31, 2017, allowance for losses totaled $6.4 million, or 7.7% of rent and other receivables, compared to $6.1 million, or 7.1%, at December 31, 2016, both balances related entirely to general allowances. See “Note 17. Allowance for Losses” in Part II, Item 8 of this Form 10-K. Operating Assets and Facilities Net operating assets and facilities increased $387.4 million from 2016. The increase was primarily due to investments of $564.4 million, positive foreign exchange rate effects of $157.4 million, and the purchase of leased-in assets of $123.4 million, offset by depreciation of $344.7 million, sale leasebacks of $83.9 million, and $80.6 million of asset dispositions. Investments in Affiliated Companies Investments in affiliated companies increased $54.0 million in 2017 (see table below). The increase was driven by our share of earnings from RRPF and an investment of $36.6 million in an RRPF affiliate to fund the purchase of additional aircraft spare engines, partially offset by distributions from RRPF. 46 The following table shows our investments in affiliated companies by segment as of December 31 (in millions): Rail North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rail International Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.8 — 434.2 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 441.0 $ 10.5 1.2 375.3 387.0 2017 2016 See “Note 6. Investments in Affiliated Companies” in Part II, Item 8 of this Form 10-K. Goodwill In 2017 and 2016, changes in the balance of our goodwill, all of which are attributable to the Rail North America and Rail International segments, resulted from fluctuations in foreign currency exchange rates. We tested our goodwill for impairment in the fourth quarter of 2017, and no impairment was indicated. See “Note 16. Goodwill” in Part II, Item 8 of this Form 10-K. Debt Total debt increased $116.6 million from the prior year. Issuances of long-term debt of $800.0 million were offset by maturities and principal payments of $703.0 million and the effects of foreign exchange on foreign debt balances. The following table shows the details of our long-term debt issuances in 2017 ($ in millions): Type of Debt Term Interest Rate Principal Amount Recourse Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 Years Recourse Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 Years Recourse Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.0 Years 3.85% Fixed 3.50% Fixed 2.11% Floating (1) $ $ 300.0 300.0 200.0 800.0 (1) Floating interest rate at December 31, 2017. As of December 31, 2017, our outstanding debt had a weighted average remaining term of 9.2 years and a weighted average interest rate of 3.96%, compared to 9.0 years and 3.65% at December 31, 2016. 47 The following table shows the carrying value of our debt obligations by major component, including off-balance sheet debt, as of December 31 (in millions): 2017 Secured Unsecured Total Commercial paper and borrowings under bank credit facilities . . . . . . . . . Recourse debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance sheet debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recourse off-balance sheet debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 11.6 12.5 24.1 435.7 4.3 4,360.1 — 4,364.4 — $ 4.3 4,371.7 12.5 4,388.5 435.7 $ 2016 Total 3.8 4,253.2 14.9 4,271.9 459.1 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 459.8 $ 4,364.4 $ 4,824.2 $ 4,731.0 (1) Off-balance sheet debt represents the estimated present value of committed operating lease payments and is equal to the amount reported as off-balance sheet assets. See “Note 7. Debt” in Part II, Item 8 of this Form 10-K. Equity Total equity increased $445.5 million in 2017, primarily due to net income of $502.0 million, which included $315.9 million from the impact of the Tax Cuts and Jobs Act enacted in 2017 (see “Non-GAAP Financial Measures”), $93.2 million of foreign currency translation adjustments due to the balance sheet effects of a weaker U.S. dollar, $10.0 million from the effects of share-based compensation, $4.8 million of net unrealized gains on derivatives, and $3.5 million from the effects of post-retirement benefit plan adjustments. These increases were partially offset by stock repurchases of $100.0 million and dividends of $68.2 million. See “Note 19. Shareholders’ Equity” in Part II, Item 8 of this Form 10-K. CASH FLOW DISCUSSION We generate a significant amount of cash from operating activities and from our investment portfolio proceeds. We also access domestic and international capital markets by issuing unsecured or secured debt and commercial paper. We use these resources, along with our available cash balances, to fulfill our debt, lease, and dividend obligations, to support our share repurchase program, and to fund portfolio investments and capital additions. We primarily use cash from operations to fund daily operations. The timing of asset dispositions and changes in working capital impact cash flows from portfolio proceeds and operations. As a result, these cash flow components may vary materially from quarter to quarter and year to year. As of December 31, 2017, we had an unrestricted cash balance of $296.5 million. 48 The following table shows our principal sources and uses of cash for the years ended December 31 (in millions): 2017 2016 2015 Principal sources of cash Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Portfolio proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale-leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from issuance of debt, commercial paper, and credit facilities . . . . . . . . . . . . . . . . . . $ 496.8 165.6 30.3 90.6 792.6 $ 629.4 223.7 23.0 82.5 859.4 541.8 482.2 18.7 — 748.8 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,575.9 $ 1,818.0 $ 1,791.5 Principal uses of cash Portfolio investments and capital additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Repayments of debt, commercial paper, and credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of leased-in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (603.4) $ (703.3) (111.8) (2.4) (100.0) (68.2) (620.7) $ (803.6) (117.1) (3.6) (120.1) (67.4) (696.9) (790.8) (118.4) (2.7) (125.4) (68.2) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,589.1) $ (1,732.5) $ (1,802.4) Net Cash Provided by Operating Activities Net cash provided by operating activities of $496.8 million decreased $132.6 million compared to 2016. The decrease was driven by lower fee income, which included $10.2 million of residual sharing income in 2017 compared to $83.6 million in 2016, lower contributions from our marine operations at Portfolio Management, and lower lease revenue at Rail North America. In addition, the net impact of changes in the balances of certain working capital items also impacted cash provided by operating activities. Portfolio Investments and Capital Additions Portfolio investments and capital additions primarily consist of purchases of operating assets, investments in affiliates, and capitalized asset improvements. Portfolio investments and capital additions of $603.4 million decreased $17.3 million compared to 2016, primarily due to fewer railcars acquired at Rail North America, partially offset by higher investments at the RRPF affiliates. The timing of investments depends on purchase commitments, transaction opportunities, and market conditions. The following table shows portfolio investments and capital additions by segment for the years ended December 31 (in millions): Rail North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rail International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460.9 90.9 14.0 36.6 1.0 $ $ 495.6 87.1 9.1 25.0 3.9 506.7 148.0 20.3 18.4 3.5 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 603.4 $ 620.7 $ 696.9 2017 2016 2015 49 Portfolio Proceeds Portfolio proceeds primarily consist of proceeds from sales of operating assets, loan and finance lease receipts, proceeds from sales of securities, and capital distributions from affiliates. Portfolio proceeds included $46.8 million in 2017, $58.8 million in 2016, and $124.4 million in 2015 from the sales of marine investments as part of our decision to exit the majority of the marine assets at our Portfolio Management segment. In 2015, we received the final payment on an outstanding loan in the amount of €67.5 million ($76.4 million), attributable to the sale of an affiliate in a prior year. The following table shows portfolio proceeds for the years ended December 31 (in millions): Proceeds from sales of operating assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease rents received, net of earned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan principal received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital distributions and proceeds related to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other portfolio proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 145.9 11.3 5.4 3.0 — — $ 201.8 11.0 1.2 2.5 6.1 1.1 $ 357.8 11.2 82.7 29.8 — 0.7 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 165.6 $ 223.7 $ 482.2 2017 2016 2015 Other Investing Activity Rail North America acquired 3,970 railcars in 2017, 3,328 railcars in 2016, and 5,004 railcars in 2015 that were previously on operating leases. Proceeds from sales of other assets for all periods were primarily related to railcar scrapping. Rail North America completed sale-leaseback financings for 699 railcars in 2017 and 574 railcars in 2016. The following table shows other investing activity for the years ended December 31 (in millions): Purchases of leased-in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale-leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ (111.8) 30.3 90.6 0.4 $ (117.1) 23.0 82.5 2.3 (118.4) 18.7 — 9.6 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.5 $ (9.3) $ (90.1) 2017 2016 2015 50 Net Cash provided by (used in) Financing Activities The following table shows net cash used in financing activities for the years ended December 31 (in millions): 2017 2016 2015 Net proceeds from issuances of debt (original maturities longer than 90 days) . . . . . . . . . . Repayments of debt (original maturities longer than 90 days) . . . . . . . . . . . . . . . . . . . . . . . Net decrease in debt with original maturities of 90 days or less . . . . . . . . . . . . . . . . . . . . . Payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock repurchases (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ 792.6 (703.0) (0.3) (2.4) (100.0) (68.2) (2.6) 859.4 (800.0) (3.6) (3.6) (120.1) (67.4) 4.8 748.8 (726.3) (64.5) (2.7) (125.4) (68.2) 1.8 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (83.9) $ (130.5) $ (236.5) (1) During 2017 and 2016, we repurchased 1.7 million shares of common stock for $100.0 million and 2.7 million shares of common stock for $120.1 million, including commissions paid, under the repurchase program authorized in 2016. During 2015, we repurchased 2.4 million shares of common stock for $125.4 million, which completed our $250 million repurchase program authorized in 2014. LIQUIDITY AND CAPITAL RESOURCES General We fund our investments and meet our debt, lease, and dividend obligations, using our available cash balances, as well as cash generated from operating activities, sales of assets, commercial paper issuances, committed revolving credit facilities, distributions from affiliates, and issuances of secured and unsecured debt. We primarily use cash from operations to fund daily operations. We use both domestic and international capital markets and banks to meet our debt financing needs. Contractual and Other Commercial Commitments The following table shows our contractual commitments, including debt principal and related interest payments, lease payments, and purchase commitments at December 31, 2017 (in millions): Total 2018 Payments Due by Period 2021 2020 2019 2022 Thereafter Recourse debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,412.6 1,790.1 Interest on recourse debt (1) . . . . . . . . . . . . . . . . . . 4.3 Commercial paper and credit facilities . . . . . . . . . . 13.2 Capital lease obligations, including interest . . . . . . 614.6 Recourse operating leases . . . . . . . . . . . . . . . . . . . . 927.3 . . . . . . . . . . . . . . . . . . . Purchase commitments (2) $ 336.6 153.7 4.3 1.6 90.6 564.3 $ 550.0 144.1 — 11.6 68.7 323.0 $ 350.0 126.6 — — 67.4 40.0 $ 566.0 117.2 — — 61.3 — $ 250.0 98.7 — — 52.9 — $ 2,360.0 1,149.8 — — 273.7 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,762.1 $ 1,151.1 $ 1,097.4 $ 584.0 $ 744.5 $ 401.6 $ 3,783.5 (1) For floating rate debt, future interest payments are based on the applicable interest rate as of December 31, 2017. (2) Primarily railcar purchase commitments. The amounts shown for all years are based on management’s estimates of the timing, anticipated car types, and related costs of railcars to be purchased under its agreements. 51 In 2014, we entered into a long-term supply agreement with Trinity Rail Group, LLC (“Trinity”), a subsidiary of Trinity Industries that took effect in mid-2016. Under the terms of that agreement, we may order up to 8,950 newly built railcars over a four-year period from March, 2016 through March, 2020. We may order either tank or freight cars; however, we expect that the majority of the order will be for tank cars. The following table shows our future contractual cash receipts arising from finance leases and future rental receipts from noncancelable operating leases as of December 31, 2017 (in millions): Total 2018 2019 2020 2021 2022 Thereafter Contractual Cash Receipts by Period Finance leases . . . . . . . . . . . . . . . . . . . . Operating leases . . . . . . . . . . . . . . . . . . $ 140.3 3,545.8 $ 21.1 947.7 $ 21.1 755.8 $ 20.6 589.9 $ 19.9 424.8 $ 28.8 302.8 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,686.1 $ 968.8 $ 776.9 $ 610.5 $ 444.7 $ 331.6 $ $ 28.8 524.8 553.6 Our aggregate future contractual cash receipts at December 31, 2017 decreased $409.0 million compared to 2016, primarily as a result of lease receipts in 2017 and lower rates and shortened lease terms for new leases and renewals completed during 2017. 2018 Liquidity Outlook In addition to our contractual obligations, expenditures in 2018 may also include the purchase of railcars that are currently leased and other discretionary capital spending for opportunistic asset purchases or strategic investments. We plan to fund these expenditures in 2018 using available cash at December 31, 2017 in combination with cash from operations, portfolio proceeds, long-term debt issuances, and our revolving credit facilities. Short-Term Borrowings We primarily use short-term borrowings as a source of working capital and to temporarily fund differences between our operating cash flows and portfolio proceeds, and our capital investments and debt maturities. We do not maintain or target any particular level of short-term borrowings on a permanent basis. Rather, we will temporarily utilize short-term borrowings at levels we deem appropriate until we decide to pay down these balances. 52 The following table shows additional information regarding our short-term borrowings: North America (1) 2016 2017 2015 Europe (2) 2016 2017 2015 Balance as of December 31 (in millions) . . . . . . . . . . . . . . . . . . . . . Weighted average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Euro/Dollar exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average daily amount outstanding during year (in millions) . . . . . . Weighted average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average Euro/Dollar exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ — $ 4.3 $ 3.8 $ 7.4 —% n/a — $ — n/a —% n/a 0.5 0.7% n/a —% n/a 1.0% 1.20 1.0% 1.05 $ 5.7 0.5% n/a $ 9.2 0.7% 1.13 $ 13.2 $ 0.6% 1.11 0.9% 1.09 5.5 1.1% 1.11 Average daily amount outstanding during 4th quarter (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average Euro/Dollar exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ — $ 12.0 $ 5.9 $ 5.2 —% n/a —% n/a —% n/a 0.6% 1.18 0.8% 1.08 1.1% 1.10 Maximum daily amount outstanding (in millions) . . . . . . . . . . . . . . Euro/Dollar exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 20.0 $ 69.0 n/a n/a n/a $ 78.2 1.18 $ 31.2 1.11 $ 75.5 1.06 (1) Short-term borrowings in North America are composed of commercial paper issued in the U.S. (2) Short-term borrowings in Europe are composed of borrowings under bank credit facilities. Credit Lines and Facilities We have a $600 million, 5-year unsecured revolving credit facility in the U.S. that matures in May 2022. As of December 31, 2017, the full $600 million was available under the facility. Additionally, we have a $250 million 5-year secured railcar facility in the U.S. with a 3-year revolving period that matures in May 2022. As of December 31, 2017, the full $250 million was available under this facility. Restrictive Covenants Our credit facility and certain other debt agreements contain various restrictive covenants. See “Note 7. Debt” in Part II, Item 8 of this Form 10-K. Credit Ratings The global capital market environment and outlook may affect our funding options and our financial performance. Our access to capital markets at competitive rates depends on our credit rating and rating outlook, as determined by rating agencies. As of December 31, 2017, our long-term unsecured debt was rated BBB by Standard & Poor’s and Baa2 by Moody’s Investor Service and our short-term unsecured debt was rated A-2 by Standard & Poor’s and P-2 by Moody’s Investor Service. Our rating outlook from both agencies was stable. Shelf Registration Statement During 2016, we filed a shelf registration statement that enables us to issue debt securities and pass-through certificates. The registration statement is effective for three years and does not limit the amount of debt securities and pass-through certificates we can issue. Commercial Commitments We have entered into various commercial commitments, such as guarantees, standby letters of credit, and performance bonds, related to certain transactions. These commercial commitments require us to fulfill specific obligations in the event of third-party demands. Similar to our balance sheet investments, these commitments expose us to credit, market, and equipment risk. Accordingly, we evaluate these commitments and other contingent obligations using techniques similar to those we use to evaluate funded transactions. 53 The following table shows our commercial commitments at December 31, 2017 (in millions): Total 2018 Amount of Commitment Expiration by Period 2022 2021 2019 2020 $ 4.9 $ 2.8 $ 2.1 $ — $ — $ — $ Lease payment guarantees . . . . . . . . . . . Standby letters of credit and performance bonds . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22.7 $ 20.6 $ 17.8 17.8 — 2.1 — — — $ — $ — $ — $ Thereafter — — — Lease payment guarantees are commitments to financial institutions to make lease payments for a third party in the event they default. We reduce any liability that may result from these guarantees by the value of the underlying asset or group of assets. We are also parties to standby letters of credit and performance bonds, which primarily relate to contractual obligations and general liability insurance coverages. No material claims have been made against these obligations, and no material losses are anticipated. Defined Benefit Plan Contributions In 2017, we contributed $5.0 million to our defined benefit pension plans and other post-retirement benefit plans. In 2018, we expect to contribute approximately $6.4 million. As of December 31, 2017, our funded pension plans were 99.5% funded in aggregate. Additional contributions will depend primarily on plan asset investment returns and actuarial experience, and subject to the impact of these factors, we may make additional material plan contributions. Separately, the shipboard personnel at ASC participate in various multiemployer benefit plans that provide pension, health care, and post-retirement and other benefits to active and retired employees. We contributed $8.4 million to these plans in 2017 and recognized that amount as marine operating expense. We expect our 2018 contributions to approximate 2017 amounts, but our contributions will ultimately depend on the number of vessels deployed and crew hours worked during the year. See “Note 10. Pension and Other Post- Retirement Benefits” in Part II, Item 8 of this Form 10-K for additional information on our benefit plans. GATX Common Stock Repurchases On January 29, 2016, our board of directors authorized 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. During 2017, we repurchased 1.7 million shares for $100.0 million under this program. In 2016, we repurchased 2.7 million shares for $120.0 million. As of December 31, 2017, $80.0 million remained available under the repurchase authorization. In 2015, we repurchased 2.4 million shares for $125.4 million which completed our prior $250 million repurchase authorization. On January 26, 2018, our board of directors approved an additional share repurchase authorization of $170 million, bringing GATX’s aggregate available repurchase authorization to $250 million. 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. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We prepare our consolidated financial statements in conformity with GAAP, which requires us to use judgment in making estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses, as well as information in the related disclosures. We regularly evaluate our estimates and judgments based on historical experience, market indicators, and other relevant factors and circumstances. Actual results may differ from these estimates under different assumptions or conditions. 54 Operating Assets We state operating assets, including assets acquired under capital leases, at cost and depreciate them over their estimated economic useful lives to an estimated residual value using the straight-line method. We determine the economic useful life based on our estimate of the period over which the asset will generate revenue. For the majority of our operating assets, the economic useful life is greater than thirty years. The residual values are based on historical experience and economic factors. We periodically review the appropriateness of our estimates of useful lives and residual values based on changes in economic circumstances and other factors. Changes in these estimates would result in a change in future depreciation expense. Lease Classification We analyze all new and modified leases to determine whether we should classify the lease as an operating or capital lease. Our lease classification analysis relies on certain assumptions that require significant judgment, such as the asset’s fair value, the asset’s estimated residual value, the interest rate implicit in the lease, and the asset’s economic useful life. While most of our leases are classified as operating leases, changes in the assumptions we use could result in a different lease classification, which would change the way the lease transaction impacts our results of operations and financial position. See “Note 5. Leases” in Part II, Item 8 of this Form 10-K. Impairment of Long-Lived Assets We review long-lived assets, such as operating assets and facilities, for impairment annually, or whenever circumstances indicate that the carrying amount of those assets may not be recoverable. We evaluate the recoverability of assets to be held and used by comparing the carrying amount of the asset to the undiscounted future net cash flows we expect the asset to generate. We base estimated future cash flows on a number of assumptions, including lease rates, lease term (including renewals), freight rates and volume, operating costs, the life of the asset, and final disposition proceeds. If we determine an asset is impaired, we recognize an impairment loss equal to the amount the carrying amount exceeds the asset’s fair value. We classify assets we plan to sell or otherwise dispose of as held for sale, provided they meet specified accounting criteria, and we record those assets at the lower of their carrying amount or fair value less costs to sell. See “Note 9. Asset Impairments and Assets Held for Sale” in Part II, Item 8 of this Form 10-K. Impairment of Investments in Affiliated Companies We review the carrying amount of our investments in affiliates annually, or whenever circumstances indicate that their value may have declined. If management determines that indicators of impairment are present for an investment, we perform an analysis to estimate the fair value of that investment. Active markets do not typically exist for our affiliate investments and as a result, we may estimate fair value using a discounted cash flow analysis at the investee level, price-earnings ratios based on comparable businesses, or other valuation techniques that are appropriate for the particular circumstances of the affiliate. For all fair value estimates, we use observable inputs whenever possible and appropriate. Once we make an estimate of fair value, we compare the estimate of fair value to the investment’s carrying value. If the investment’s estimated fair value is less than its carrying value, then we consider the investment impaired. If an investment is impaired, we assess whether the impairment is other-than-temporary. We consider factors such as the expected operating results for the near future, the length of the economic life cycle of the underlying assets of the investee, and our ability to hold the investment through the end of the underlying assets’ useful life to determine if the impairment is other-than-temporary. We may also consider actions we anticipate the investee will take to improve its business prospects if it seems probable the investee will take those actions. If we determine an investment to be only temporarily impaired, we do not record an impairment loss. Alternatively, if we determine an impairment is other-than-temporary, we record a loss equal to the difference between the estimated fair value of the investment and its carrying value. See “Note 6. Investments in Affiliated Companies” and “Note 9. Asset Impairments and Assets Held for Sale” in Part II, Item 8 of this Form 10-K. Impairment of Goodwill We review the carrying amount of our goodwill annually, or if circumstances indicate an impairment may have occurred. We perform the impairment review at the reporting unit level, which is one level below an operating segment. The goodwill impairment test is a two-step process and requires us to make certain judgments to determine the assumptions we use in the calculation. The first step requires us to estimate the fair value of each reporting unit, which we determine using a discounted cash flow model. We base our estimates of the future cash flows on revenue and expense forecasts and include assumptions for future growth. When estimating the fair value of the reporting unit, we also consider observable multiples of book value and earnings for companies that we believe 55 are comparable to the applicable reporting units. We then compare our estimate of the fair value of the reporting unit with the reporting unit’s carrying amount, which includes goodwill. If the estimated fair value is less than the carrying amount, we compare the implied fair value of the reporting unit’s goodwill with the carrying amount of the goodwill. If the carrying amount of the goodwill exceeds its implied fair value, we record an impairment loss for the amount the carrying amount of the goodwill exceeds its implied fair value. See “Note 16. Goodwill” in Part II, Item 8 of this Form 10-K. Pension and Post-Retirement Benefits Assumptions We use actuarial assumptions to calculate pension and other post-retirement benefit obligations and related costs. The discount rate and the expected return on plan assets are two critical assumptions that influence the plan expense and liability measurement. Other assumptions involve demographic factors such as expected retirement age, mortality, employee turnover, health care cost trends, and the rate of compensation increases. We use a discount rate to calculate the present value of expected future pension and post-retirement cash flows as of the measurement date. The discount rate is based on yields for high-quality, long-term bonds with durations similar to the projected benefit obligation. We base the expected long-term rate of return on plan assets on current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. We evaluate these critical assumptions annually and make adjustments as required in accordance with changes in underlying market conditions, valuation of plan assets, or demographics. Changes in these assumptions may increase or decrease periodic benefit plan expense as well as the carrying value of benefit plan obligations. See “Note 10. Pension and Other Post-Retirement Benefits” in Part II, Item 8 of this Form 10-K for additional information regarding these assumptions. Share-Based Compensation We grant equity awards to certain employees and non-employee directors in the form of non-qualified stock options, stock appreciation rights, restricted stock, performance shares, and phantom stock. We recognize compensation expense for our equity awards over the applicable service period for each award, based on the award’s grant date fair value. We use the Black-Scholes options valuation model to calculate the grant date fair value of stock options and stock appreciation rights. This model requires us to make certain assumptions, some of which are highly subjective, that affect the amount of compensation expense we will record. The assumptions we use in the model include the expected stock price volatility (based on the historical volatility of our stock price), the risk-free interest rate (based on the treasury yield curve), the expected life of the equity award (based on historical exercise patterns and post-vesting termination behavior), and the dividend equivalents we expect to pay during the estimated life of the equity award since our stock options and stock appreciation rights are dividend participating. We base the fair value of other equity awards on our stock price on the grant date. We recognize forfeitures when they occur. See “Note 11. Share-Based Compensation” in Part II, Item 8 of this Form 10-K. 56 Income Taxes Our operations are subject to taxes in the U.S., various states, and foreign countries, and as a result, we may be subject to audit in all of these jurisdictions. Tax audits may involve complex issues and disagreements with taxing authorities that could require several years to resolve. GAAP requires that we presume the relevant tax authority will examine uncertain income tax positions. We must determine whether, based on the technical merits of our position, it is more likely than not that our uncertain income tax positions will be sustained by taxing authorities upon examination, which may include related appeals or litigation processes. We must then evaluate income tax positions that meet the “more likely than not” recognition threshold to determine the probable amount of benefit we would recognize in the financial statements. Establishing accruals for uncertain tax benefits requires us to make estimates and assessments with respect to the ultimate outcome of tax audit issues for amounts recorded in the financial statements. The ultimate resolution of uncertain tax benefits may differ from our estimates, potentially impacting our financial position, results of operations, or cash flows. We evaluate the need for a deferred tax asset valuation allowance by assessing the likelihood that we will realize tax assets, including net operating loss and tax credit carryforward benefits. Our assessment of whether a valuation allowance is required involves judgment, including forecasting future taxable income and evaluating tax planning initiatives, if applicable. As part of the Tax Act, a territorial tax system was implemented and a one-time transitional repatriation tax of $57.2 million was imposed attributable to certain undistributed earnings and profits of our non-U.S. subsidiaries and affiliates. We expect to continue to reinvest foreign earnings outside the U.S. indefinitely. If future earnings are repatriated to the U.S., or if we expect such earnings to be repatriated, a provision for additional taxes may be required. The territorial tax system will generally exempt such repatriated earnings from further U.S. income taxes, however, incremental income taxes may occur from withholding taxes, foreign exchange gains, or other taxable gains recognized in connection with tax basis differences in these foreign investments. The ultimate tax cost of repatriating such earnings will depend on tax laws in effect and other circumstances at that time. See “Note 12. Income Taxes” in Part II, Item 8 of this Form 10-K for additional information on income taxes. 57 NEW ACCOUNTING PRONOUNCEMENTS See “Note 2. Accounting Changes” in Part II, Item 8 of this Form 10-K for a summary of new accounting pronouncements that may impact our business. NON-GAAP FINANCIAL MEASURES In addition to financial results reported in accordance with GAAP, we compute certain financial measures using non-GAAP components, as defined by the SEC. These measures are not in accordance with, or a substitute for, GAAP and our financial measures may be different from non-GAAP financial measures used by other companies. We have provided a reconciliation of our non-GAAP components to the most directly comparable GAAP components. Reconciliation of Non-GAAP Components Used in the Computation of Certain Financial Measures Balance Sheet Measures We include total on- and off-balance sheet assets because a portion of our North American railcar fleet has been financed through sale-leasebacks that are accounted for as operating leases and are not recorded on the balance sheet. Similarly, ASC previously utilized vessels that were accounted for as operating leases and were not recorded on the balance sheet. We include these leased-in assets in our calculation of total assets (as adjusted) because we believe it gives investors a more comprehensive representation of the magnitude of the assets we operate and that drive our financial performance. In addition, this calculation of total assets (as adjusted) provides consistency with other non-financial information we disclose about our fleet, including the number of railcars in the fleet, average number of cars on lease, and utilization. We also provide information regarding our leverage ratios, which are expressed as a ratio of debt (including off-balance sheet debt) to equity. The off-balance sheet debt amount in this calculation is the equivalent of the off-balance sheet asset amount. We believe reporting this corresponding off-balance sheet debt amount provides investors and other users of our financial statements with a more comprehensive representation of our debt obligations, leverage, and capital structure. The following table shows total balance sheet assets as of December 31 (in millions): 2017 2016 2015 2014 2013 Total assets (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,422.4 $ 7,105.4 $ 6,894.2 $ 6,919.9 $ 6,535.5 Off-balance sheet assets: Rail North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total off-balance sheet assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets, as adjusted (non-GAAP) . . . . . . . . . . . . . . . . . . . . . Shareholders’ Equity (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . 435.7 — 435.7 7,858.1 1,792.7 456.5 2.6 459.1 7,564.5 1,347.2 488.7 6.8 495.5 7,389.7 1,280.2 $ $ $ 606.1 11.7 617.8 7,537.7 1,314.0 887.9 16.5 904.4 7,439.9 1,397.0 $ $ $ $ $ $ $ $ $ $ $ $ 58 The following table shows the components of recourse leverage as of December 31 (in millions, except recourse leverage ratio): 2017 2016 2015 2014 2013 Debt, net of unrestricted cash: Unrestricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Commercial paper and bank credit facilities . . . . . . . . . Recourse debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonrecourse debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . Total debt, net of unrestricted cash (GAAP) . . . . . . . . . . . Off-balance sheet recourse debt . . . . . . . . . . . . . . . . . . . . . Off-balance sheet nonrecourse debt . . . . . . . . . . . . . . . . . . (296.5) $ 4.3 4,371.7 — 12.5 4,092.0 435.7 — Total debt, net of unrestricted cash, as adjusted (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,527.7 Total recourse debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Recourse Leverage (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,527.7 1,792.7 2.5 $ $ $ (307.5) $ 3.8 4,253.2 — 14.9 (202.4) $ 7.4 4,171.5 6.9 18.4 (209.9) $ 72.1 4,162.3 15.9 6.3 3,964.4 459.1 — 4,423.5 4,423.5 1,347.2 3.3 $ $ $ 4,001.8 495.5 — 4,497.3 4,490.4 1,280.2 3.5 $ $ $ 4,046.7 566.7 51.1 4,664.5 4,597.5 1,314.0 3.5 $ $ $ (379.7) 23.6 3,751.8 72.6 8.9 3,477.2 727.6 176.8 4,381.6 4,132.2 1,397.0 3.0 (1) Includes on- and off-balance sheet recourse debt, capital lease obligations, and commercial paper and bank credit facilities, net of unrestricted cash. (2) Calculated as total recourse debt / shareholder’s equity. Excluding the impact to shareholders’ equity attributable of the Tax Cuts and Jobs Act (“Tax Act”) enacted in 2017, leverage would be 3.1 for 2017. 59 Net Income Measures We exclude the effects of certain tax adjustments and other items for purposes of presenting net income, diluted earnings per share, and return on equity, because we believe these items are not attributable to our business operations. Management utilizes net income, excluding tax adjustments and other items, when analyzing financial performance because such amounts reflect the underlying operating results that are within management’s ability to influence. Accordingly, we believe presenting this information provides investors and other users of our financial statements with meaningful supplemental information for purposes of analyzing year-to-year financial performance on a comparable basis and assessing trends. The following tables show our net income, diluted earnings per share, and return on equity, excluding tax adjustments and other items for the years ended December 31 (in millions, except per share data): Impact of Tax Adjustments and Other Items on Net Income: Net income (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Adjustments attributable to consolidated pre-tax income: 2017 2016 2015 2014 2013 502.0 $ 257.1 $ 205.3 $ 205.0 $ 169.3 Railcar impairment at Rail North America (1) . . . . . . . . . . . . . . . . . . . . . . Net (gain) loss on wholly owned Portfolio Management marine investments (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residual sharing settlement at Portfolio Management (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Early retirement program (4) — 29.8 (1.8) — — 2.5 (49.1) — — 9.2 — 9.0 — — — — Total adjustments attributable to consolidated pre-tax income . . . . . . . . . . . $ Income taxes thereon, based on applicable effective tax rate . . . . . . . . . . . $ (1.8) $ 0.7 $ (16.8) $ 7.2 $ 18.2 $ (6.9) $ — $ — $ Other income tax adjustments attributable to consolidated income: Income tax rate changes (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX income taxes on sale of AAE (6) Impact of the Tax Cuts and Jobs Act of 2017 (7) . . . . . . . . . . . . . . . . . . . . Foreign tax credit utilization (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (315.9) — — — — (7.1) 14.1 — — — — — — — — — — — — — — 23.2 — (3.9) Total other income tax adjustments attributable to consolidated income . . . $ Adjustments attributable to affiliates’ earnings, net of taxes: (315.9) $ (7.1) $ 14.1 $ — $ 19.3 Net (gain) loss on Portfolio Management marine affiliate (2) . . . . . . . . . . Income tax rate changes (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pre-tax gain on sale of AAE (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swaps at AAE (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (0.6) (3.9) — — 11.9 (7.7) — — — — — — — (7.6) (9.3) (6.9) Total adjustments attributable to affiliates’ earnings, net of taxes . . . . . . . . . $ — $ (4.5) $ 4.2 $ — $ (23.8) Net income, excluding tax adjustments and other items (non-GAAP) . . . . . $ 185.0 $ 235.9 $ 234.9 $ 205.0 $ 164.8 60 Impact of Tax Adjustments and Other Items on Diluted Earnings per Share: 2017 2016 2015 2014 2013 Diluted earnings per share (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12.75 $ Adjustments attributable to consolidated income, net of taxes: 6.29 $ 4.69 $ 4.48 $ 3.59 Railcar impairment at Rail North America (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Net (gain) loss on wholly owned Portfolio Management marine investments (2) . . . Residual sharing settlement at Portfolio Management (3) . . . . . . . . . . . . . . . . . . Early retirement program (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax rate changes (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX income taxes on sale of AAE (6) Impact of the Tax Cuts and Jobs Act enacted in 2017 (7) . . . . . . . . . . . . . . . . . . Foreign tax credit utilization (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments attributable to affiliates’ earnings, net of taxes: Net (gain) loss on Portfolio Management marine affiliate (2) . . . . . . . . . . . . . . . Income tax rate changes (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pre-tax gain on sale of AAE (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swaps at AAE (10) — (0.03) — — — — (8.02) — — — — — 0.47 0.04 (0.74) — — — — (0.17) (0.02) (0.10) — — — 0.13 — 0.13 0.32 — — — 0.27 (0.18) — — — — — — — — — — — — — — — — — — — 0.50 — (0.08) — (0.16) (0.20) (0.15) Diluted earnings per share, excluding tax adjustments and other items (non-GAAP)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.70 $ 5.77 $ 5.37 $ 4.48 $ 3.50 * Sum of individual components may not be additive, due to rounding. (1) In 2016, we recorded impairment losses related specifically to certain railcars in flammable service that we believe have been permanently and negatively impacted by regulatory changes. (2) In 2015, we made the decision to exit the majority of our non-core, marine investments within our Portfolio Management segment. As a result, we recorded gains and losses associated with the impairments and sales of certain investments. (3) Proceeds were recorded as a result of the settlement of a residual sharing agreement related to a residual guarantee we provided on certain rail assets. (4) Expenses associated with an early retirement program offered to certain eligible employees. (5) Deferred income tax adjustments attributable to an increase of our effective state income tax rate. (6) Aggregate after-tax impact of the sale of Ahaus Alstätter Eisenbahn Cargo AG (“AAE”), a former affiliate investment, including the $3.9 million foreign credit carryforward, was a net loss of $10.0 million. (7) Amounts shown represent the estimated impact of corporate income tax changes enacted by the Tax Cuts and Jobs Act (“Tax Act”), signed into law on December 22, 2017. The ultimate impact of the Tax Act may differ from these estimates, due to, among other things, changes in interpretations and assumptions made by GATX, additional guidance that may be issued by the U.S. Department of the Treasury, and actions that GATX may take. (8) Benefits attributable to the utilization of foreign tax credit carryforwards. (9) Deferred income tax adjustments due to enacted statutory rate decreases in the United Kingdom for each of 2016, 2015, and 2013. (10) Unrealized gains on AAE interest rate swaps. Return on Equity (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on Equity, excluding tax adjustments and other items (non-GAAP) . . . . . . . 32.0% 19.6% 15.8% 15.1% 12.8% 13.1% 18.0% 18.1% 15.1% 12.5% 2017 2016 2015 2014 2013 61 Item 7A. Quantitative and Qualitative Disclosures About Market Risk In the normal course of business, we are exposed to interest rate and foreign currency exchange rate risks that could impact our financial results. To manage these risks we may enter into certain derivative transactions, principally interest rate swaps, Treasury rate locks, options and currency forwards and swaps. These instruments and other derivatives are entered into only for hedging existing underlying exposures. We do not hold or issue derivative financial instruments for speculative purposes. Interest Rate Exposure — Our reported interest expense is affected by changes in interest rates, primarily LIBOR, as a result of the issuance of floating rate debt instruments. We generally manage the amount of floating rate debt exposure based on the relationship between lease revenues and interest rates. Based on our floating rate debt instruments at December 31, 2017, and giving effect to related derivatives, a hypothetical increase in market interest rates of 100 basis points would cause an increase in after-tax interest expense of $7.3 million in 2018. Comparatively, at December 31, 2016, a hypothetical 100 basis point increase in interest rates would have resulted in a $6.1 million increase in after-tax interest expense in 2017. Our earnings are also exposed to interest rate changes from affiliates’ earnings. Certain affiliates issue floating rate debt instruments to finance their investments. Foreign Currency Exchange Rate Exposure — Certain of our foreign subsidiaries conduct business in currencies other than the U.S. dollar, principally those operating in Austria, Canada, Germany, and Poland. As a result, we are exposed to foreign currency risk attributable to changes in the exchange value of the U.S. dollar in terms of the euro, Canadian dollar, and Polish zloty. Based on 2017 local currency earnings and considering non-functional currency assets and liabilities recorded as of December 31, 2017, and giving effect to related derivatives, a uniform and hypothetical 10% strengthening in the U.S. dollar versus applicable foreign currencies would decrease after-tax income in 2018 by $4.2 million. Comparatively, based on 2016 local currency earnings and considering non-functional currency assets and liabilities recorded as of December 31, 2016, a uniform and hypothetical 10% strengthening in the U.S. dollar versus applicable foreign currencies would have decreased after-tax income in 2017 by $3.7 million. 62 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND NOTES Report of Independent Registered Public Accounting Firm on Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements Note 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 2. Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 3. Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 4. Supplemental Cash Flow Information and Noncash Investing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 5. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 6. Investments in Affiliated Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 7. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 8. Fair Value Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 9. Assets Impairments and Assets Held for Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 10. Pension and Other Post-Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 11. Share-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 12. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 13. Concentrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 14. Commercial Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 15. Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 16. Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 17. Allowance for Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 18. Other Assets and Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 19. Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 20. Accumulated Other Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 21. Foreign Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 22. Legal Proceedings and Other Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 23. Financial Data of Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 24. Selected Quarterly Financial Data (unaudited) Page 64 65 66 67 68 69 69 73 79 79 81 84 87 89 91 98 102 104 105 105 106 106 107 107 108 108 109 112 116 63 Report of Independent Registered Public Accounting Firm on Financial Statements To the Shareholders and the Board of Directors of GATX Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of GATX Corporation and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 2018 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 1916. Chicago, Illinois February 21, 2018 64 GATX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, except share data) Assets Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Restricted Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables Rent and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: allowance for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31 2017 2016 $ 296.5 3.2 307.5 3.6 83.4 136.1 (6.4) 213.1 85.9 147.7 (6.1) 227.5 Operating Assets and Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: allowance for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,045.4 (2,853.3) 8,446.4 (2,641.7) Investments in Affiliated Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,192.1 441.0 85.6 190.9 5,804.7 387.0 78.0 297.1 Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,422.4 $ 7,105.4 154.3 $ 174.8 Liabilities and Shareholders’ Equity Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Debt Commercial paper and borrowings under bank credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ Equity Common stock, $0.625 par value: Authorized shares — 120,000,000 Issued shares — 67,083,149 and 66,953,606 Outstanding shares — 37,895,641 and 39,442,893 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock at cost (29,187,508 and 27,510,713 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 4,371.7 12.5 4,388.5 853.7 233.2 5,629.7 41.6 698.0 2,261.7 (109.6) (1,099.0) Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,792.7 3.8 4,253.2 14.9 4,271.9 1,089.4 222.1 5,758.2 41.5 687.8 1,828.0 (211.1) (999.0) 1,347.2 Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,422.4 $ 7,105.4 See accompanying notes to consolidated financial statements. 65 GATX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions, except per share data) Year Ended December 31 2016 2015 2017 Revenues Lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Marine operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses Maintenance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marine operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income (Expense) Net gain on asset dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before Income Taxes and Share of Affiliates’ Earnings . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of affiliates’ earnings, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,098.1 193.4 85.4 1,376.9 $ 1,127.1 199.3 91.9 1,418.3 $ 1,130.1 235.0 84.8 1,449.9 328.3 131.0 307.3 62.5 34.4 181.5 332.3 129.5 297.2 73.5 43.8 174.7 326.1 155.9 290.5 87.2 38.4 192.4 1,045.0 1,051.0 1,090.5 54.1 (160.5) (11.1) 214.4 243.7 43.9 98.0 (148.1) (11.8) 305.4 (95.7) 47.4 79.2 (155.1) (13.2) 270.3 (110.9) 45.9 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 502.0 $ 257.1 $ 205.3 Other Comprehensive Income, Net of Taxes Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gain (loss) on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gain (loss) on derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Post-retirement benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93.2 — 4.8 3.5 Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.5 (26.0) 0.3 0.6 12.8 (12.3) (55.8) (0.6) (1.8) 7.8 (50.4) Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 603.5 $ 244.8 $ 154.9 Share Data Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Average number of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Average number of common shares and common share equivalents . . . . . . . . . . . . . . . . . . . . $ $ 12.95 38.8 12.75 39.4 $ $ 6.35 40.5 6.29 40.9 4.76 43.1 4.69 43.8 Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.68 $ 1.60 $ 1.52 See accompanying notes to consolidated financial statements. 66 GATX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Year Ended December 31 2016 2015 2017 Operating Activities Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Adjustments to reconcile net income to net cash provided by operating activities: 502.0 $ 257.1 $ 205.3 Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in accrued operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gains on sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of affiliates’ earnings, net of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investing Activities Additions to operating assets and facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio investments and capital additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of leased-in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale-leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing Activities Net proceeds from issuances of debt (original maturities longer than 90 days) . . . . . . . . . . . . . . Repayments of debt (original maturities longer than 90 days) . . . . . . . . . . . . . . . . . . . . . . . . . . . Net decrease in debt with original maturities of 90 days or less . . . . . . . . . . . . . . . . . . . . . . . . . Payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of Exchange Rate Changes on Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . Net (decrease) increase in Cash, Cash Equivalents, and Restricted Cash during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash, Cash Equivalents, and Restricted Cash at beginning of year . . . . . . . . . . . . . . . . . . . 322.7 (13.9) (52.5) 8.6 3.3 9.9 (260.5) (4.6) (13.7) (4.5) 496.8 (566.8) (36.6) (603.4) (111.8) 165.6 30.3 90.6 0.4 (428.3) 792.6 (703.0) (0.3) (2.4) (100.0) (68.2) (2.6) (83.9) 4.0 (11.4) 311.1 310.2 3.0 (52.9) 38.5 7.1 15.8 72.8 (5.7) (12.2) (4.3) 629.4 (595.7) (25.0) (620.7) (117.1) 223.7 23.0 82.5 2.3 (406.3) 859.4 (800.0) (3.6) (3.6) (120.1) (67.4) 4.8 (130.5) (1.2) 91.4 219.7 303.3 (24.2) (99.7) 33.9 10.6 11.6 90.2 7.4 (13.7) 17.1 541.8 (681.4) (15.5) (696.9) (118.4) 482.2 18.7 — 9.6 (304.8) 748.8 (726.3) (64.5) (2.7) (125.4) (68.2) 1.8 (236.5) (5.2) (4.7) 224.4 Cash, Cash Equivalents, and Restricted Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 299.7 $ 311.1 $ 219.7 See accompanying notes to consolidated financial statements. 67 GATX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In millions) Common Stock . . . . . . . . . . . . . . . . . . . . . . . Balance at beginning of year Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury Stock Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Paid In Capital Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation effects . . . . . . . . . . . . . . . . . . . Cumulative impact of accounting standard adoption . . . . . Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained Earnings Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative impact of accounting standard adoption . . . . . Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated Other Comprehensive Loss Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 Shares 2017 Dollars 2016 Shares 2016 Dollars 2015 Shares 2015 Dollars $ 67.0 0.1 67.1 41.5 0.1 41.6 66.8 $ 0.2 67.0 41.5 — 41.5 $ 66.6 0.2 66.8 41.4 0.1 41.5 (27.5) (1.7) (999.0) (100.0) (29.2) (1,099.0) (24.8) (2.7) (27.5) (878.9) (120.1) (999.0) (22.4) (2.4) (24.8) (753.5) (125.4) (878.9) 687.8 10.0 0.2 698.0 1,828.0 502.0 (68.2) (0.1) 2,261.7 (211.1) 101.5 (109.6) 677.4 10.4 — 687.8 1,639.0 257.1 (68.1) — 1,828.0 (198.8) (12.3) (211.1) 672.8 4.6 — 677.4 1,501.7 205.3 (68.0) — 1,639.0 (148.4) (50.4) (198.8) Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . $ 1,792.7 $ 1,347.2 $ 1,280.2 See accompanying notes to consolidated financial statements. 68 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Description of Business As used herein, “GATX,” “we,” “us,” “our,” and similar terms refer to GATX Corporation and its subsidiaries, unless indicated otherwise. We lease, operate, manage, and remarket long-lived, widely-used assets, primarily in the rail market. We report our financial results through four primary business segments: Rail North America, Rail International, American Steamship Company (“ASC”), and Portfolio Management. NOTE 2. Accounting Changes Change in Accounting Estimate At the end of 2015, we changed the approach used to measure service and interest costs for pension and other postretirement benefits. In prior years, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. For 2016 and 2017, we measured service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe this approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have applied it on a prospective basis. Our adoption of the full yield curve approach reduced 2016 service and interest cost by approximately $4.5 million ($2.8 million after-tax) as compared to the previous method. New Accounting Pronouncements Adopted Standard/Description Equity Method and Joint Ventures In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting, which eliminates the requirement to retrospectively apply equity method accounting when an entity increases ownership or influence in a previously held investment. Effective Date and Adoption Considerations Effect on Financial Statements or Other Significant Matters The new guidance was effective for us in the first quarter of 2017. Application of the new guidance did not impact our financial statements or related disclosures. 69 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) New Accounting Pronouncements Adopted (Continued) Standard/Description Stock Compensation In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies and clarifies certain aspects of share-based payment accounting and presentation. The update requires recognition of excess tax benefits and tax deficiencies, which arise due to differences between the measure of compensation expense and the amount deductible for tax purposes, to be recorded directly through earnings as a component of income tax expense. Previously, these differences were generally recorded in additional paid-in capital and thus had no impact on net income. The change in treatment of excess tax benefits and tax deficiencies also impacts the computation of diluted earnings per share, and the cash flows associated with those items are classified as operating activities on the consolidated statements of cash flows. The guidance also clarifies that all cash payments made to taxing authorities on the employees’ behalf for withheld shares should be classified as financing activities on the consolidated statements of cash flows. Additionally, the guidance permits entities to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated as of the initial valuation date, as allowed under the previous guidance, or recognized when they occur. Statement of Cash Flows In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies the classification of certain cash receipts and payments in the statement of cash flows. Effective Date and Adoption Considerations Effect on Financial Statements or Other Significant Matters We adopted this guidance as of January 1, 2017. We changed our accounting policy to recognize forfeitures when they occur as part of this adoption. Adoption of this new standard did not have a material impact on our financial statements or related disclosures. We adopted the new guidance in 2017 using the retrospective method. Application of the new guidance required reclassification of certain cash flows within operating activities to investing and financing activities on the consolidated statements of cash flows. Adoption of this new standard did not have a material impact on our financial statements. 70 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) New Accounting Pronouncements Adopted (Continued) Standard/Description Statement of Cash Flows Effective Date and Adoption Considerations Effect on Financial Statements or Other Significant Matters Application of the new guidance requires presentation of restricted cash together with cash and cash equivalents on the consolidated statements of cash flows and eliminates the disclosure of the related changes in restricted cash within investing activities. Adoption of this new standard did not have a material impact on our financial statements. Our primary source of revenue is lease revenue, which will continue to be within the scope of existing lease accounting guidance upon adoption of Topic 606. We have completed our review of all other revenue sources in scope for the new standard, and marine operating revenue is our largest component. In accordance with the new standard, the basis for determining revenue allocable to in-process shipments will be modified; however, the impact will not have a material impact on our financial statements. Also, the net cumulative effect of this change will be immaterial to retained earnings as of January 1, 2018. We continue to assess the effect the new guidance will have on our consolidated financial statements and related disclosures. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies the classification and presentation of changes in restricted cash on the statement of cash flows. We adopted the new guidance as of January 1, 2017, using the retrospective method. New Accounting Pronouncements Not Yet Adopted Revenue from Contracts with Customers In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes most current revenue recognition guidance, including industry-specific guidance. Subsequently, the FASB has issued updates which provide additional implementation guidance. The new guidance requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The FASB delayed the effective date of this guidance to the first quarter of 2018, with early adoption permitted as of the original effective date of the first quarter of 2017. We plan to adopt this guidance as of January 1, 2018 using the modified retrospective approach. Leases In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes most current lease guidance. The new guidance requires companies to recognize most leases on the balance sheet and modifies accounting, presentation, and disclosure for both lessors and lessees. The new guidance is effective for us in the first quarter of 2019 with early adoption permitted. We plan to adopt this guidance on January 1, 2019, using a modified retrospective transition method, and we expect to utilize the package of optional practical expedients as provided in the standard. 71 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) New Accounting Pronouncements Not Yet Adopted (Continued) Standard/Description Financial Instruments Effective Date and Adoption Considerations Effect on Financial Statements or Other Significant Matters In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities, which modifies the accounting and reporting requirements for certain equity securities and financial liabilities. The new guidance is effective for us beginning in the first quarter of 2018, with certain provisions eligible for early adoption. Credit Losses We do not expect the new guidance to have a significant impact on our financial statements or related disclosures. In June 2016, the FASB issued ASU 2016-13, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies how entities will measure credit losses. The new guidance is effective for us in the first quarter of 2020, with early adoption permitted. We are evaluating the effect the new guidance will have on our financial statements and related disclosures. We have completed our review for the new standard and have concluded the new guidance will not have a material impact on our financial statements. We do not expect the new guidance to have a significant impact on our financial statements or related disclosures. We do not expect the new guidance to have a significant impact on our financial statements or related disclosures. Income Taxes In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which modifies how an entity will recognize the income tax consequences of an intra-entity transfer of an asset when the transfer occurs. Compensation In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which modifies how an entity must present service costs and other components of net benefit cost. Derivatives and Hedging In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The new guidance is effective for us in the first quarter of 2018, with early adoption permitted. We plan to adopt this guidance on January 1, 2018, applying the modified retrospective method. The new guidance is effective for us in the first quarter of 2018, with early adoption permitted. We plan to adopt this guidance on January 1, 2018, applying the retrospective method, and we expect to elect the optional practical expedient. The update to the standard is effective for us beginning in the first quarter of 2019, with early adoption permitted in any interim period. 72 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) New Accounting Pronouncements Not Yet Adopted (Continued) Effective Date and Adoption Considerations Effect on Financial Statements or Other Significant Matters We do not expect the new guidance to have a significant impact on our financial statements or related disclosures. This guidance is effective for us in the first quarter of 2019, with early adoption permitted if financial statements have not yet been issued or made available for issuance. We plan to adopt the new guidance in the first quarter of 2018. Standard/Description Accumulated Other Comprehensive Income In February 2018, the FASB issued ASU 2018-02, Income Statement Reporting - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits reclassification of certain stranded tax effects resulting from the newly enacted Tax Cuts and Jobs Act from Accumulated Other Comprehensive Income to Retained Earnings. The amount of the reclassification is calculated on the basis of the difference between the historical and newly enacted tax rates recorded for the applicable AOCI components. NOTE 3. Significant Accounting Policies Basis of Presentation We prepared the accompanying consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain prior year amounts have been reclassified to conform to the 2017 presentation. Consolidation Our consolidated financial statements include our assets, liabilities, revenues, and expenses, as well as the assets, liabilities, revenues, and expenses of subsidiaries in which we had a controlling financial interest. We have eliminated intercompany transactions and balances. Use of Estimates Preparing financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts we report. We regularly evaluate our estimates and judgments based on historical experience and other relevant facts and circumstances. Actual amounts could differ from our estimates. Lease Classification We determine the classification of a lease at its inception. If the provisions of the lease subsequently change, other than by renewal or extension, we evaluate whether that change would have resulted in a different lease classification had the change been in effect at inception. If so, the revised agreement is considered a new lease for lease classification purposes. See “Note 5. Leases.” Revenue Recognition Operating Lease Revenue We lease railcars and other operating assets under full-service and net operating leases. We price full-service leases as an integrated service that includes amounts related to executory costs, such as maintenance, insurance, and ad valorem taxes. We do not offer stand- alone maintenance service contracts and are unable to separate executory costs from full-service lease revenue. Operating lease revenue, including amounts related to executory costs, is recognized on a straight-line basis over the term of the underlying lease. As a result, we may not recognize lease revenue in the same period as maintenance and other executory costs, which we expense as incurred. Contingent rents are recognized when the contingency is resolved. Revenue is not recognized if collectability is not reasonably assured. See “Note 5. Leases.” 73 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Finance Lease Revenue In certain cases, we lease railcars and other operating assets that, at lease inception, are classified as finance leases. We recognize unearned income as lease revenue using the interest method, which produces a constant yield over the lease term. Initial unearned income is the amount that the original lease payment receivable and the estimated residual value of the leased asset exceeds the original cost or carrying value of the leased asset. We regularly review the finance lease portfolio and classify finance leases as non-performing if it is probable that we will be unable to collect all amounts due under the lease. We generally stop accruing income on non-performing finance leases until all contractual payments are current. We apply payments received for non-performing finance leases to the lease payment receivable. See “Note 5. Leases.” Marine Operating Revenue We recognize marine operating revenue as we perform shipping services, and we allocate revenue among reporting periods based on the relative transit time in each reporting period for shipments in process. Other Revenue We include customer liability repair revenue, utilization income, fee income, interest on loans, and other miscellaneous revenues in other revenue. We recognize these revenues when earned, which is generally when we perform the related services. Cash and Cash Equivalents We classify all highly liquid investments with a maturity of three months or less as cash equivalents. Restricted Cash Restricted cash is cash and cash equivalents that are restricted as to withdrawal and use. Our restricted cash primarily relates to contractually required cash amounts we maintain for one wholly owned special purpose limited liability company. Finance Lease Receivables We record a gross lease payment receivable and an estimated residual value, net of unearned income, for our finance leases. For sales-type leases, we may also recognize a gain or loss in the period the lease is recorded. Gross lease payment receivables are the rents we expect to receive through the end of the lease term for a leased asset. Estimated residual values are our estimates of value of an asset at the end of a finance lease term. We review our estimates of residual values annually or whenever circumstances indicate that residual values may have declined. Other-than-temporary declines in value are recognized as impairments. Allowance for Losses The allowance for losses is our estimate of credit losses associated with reservable assets. Reservable assets are divided into two categories: rent and other receivables, which includes short-term trade billings, and loans and finance lease receivables. Our loss reserves for rent and other receivables are based on historical loss experience and judgments about the impact of economic conditions, the state of the markets we operate in, and collateral values, if applicable. In addition, we may establish specific reserves for known troubled accounts. We evaluate reserve estimates for loans and finance lease receivables on a customer-specific basis, considering each customer’s particular credit situation. We also consider the factors we use to evaluate rent and other receivables, which are outlined above. We charge amounts against the allowance when we deem them uncollectable. We made no material changes in our estimation methods or assumptions for the allowance during 2017. We believe that the allowance is adequate to cover losses inherent in our 74 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) reservable assets as of December 31, 2017. Since the allowance is based on judgments and estimates, it is possible that actual losses incurred will differ from the estimate. See “Note 17. Allowance for Losses.” Operating Assets and Facilities We state operating assets, facilities, and capitalized improvements at cost. We include assets we acquire under capital leases in operating assets, and we record the related obligations as liabilities. We depreciate operating assets and facilities over their estimated useful lives or lease terms to estimated residual values using the straight-line method. We depreciate leasehold improvements over the shorter of their useful lives or the lease term. Our estimated depreciable lives of operating assets and facilities are as follows: Railcars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Locomotives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marine vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other equipment 20–45 years 10–20 years 40–50 years 5–15 years 30–65 years 5–30 years We review our operating assets and facilities for impairment annually, or if circumstances indicate that the carrying amount of those assets may not be recoverable. We evaluate the recoverability of assets to be held and used by comparing the carrying amount of the asset to the undiscounted future net cash flows we expect the asset to generate. If we determine an asset is impaired, we recognize an impairment loss equal to the amount the carrying amount exceeds the asset’s fair value. We classify assets we plan to sell or otherwise dispose of as held for sale, provided they meet specified accounting criteria, and we record those assets at the lower of their carrying amount or fair value less costs to sell. See “Note 9. Asset Impairments and Assets Held for Sale” for further information about asset impairment losses and assets held for sale. Investments in Affiliates We use the equity method to account for investments in joint ventures and other unconsolidated entities if we have the ability to exercise significant influence over the financial and operating policies of those investees. Under the equity method, we record our initial investments in these entities at cost and subsequently adjust the investment for our share of the affiliates’ undistributed earnings (losses), and distributions. We include loans to and from affiliates as part of our investment in the affiliate and include interest on any such loans in our share of the affiliates’ earnings. We review the carrying amount of our investments in affiliates annually, or whenever circumstances indicate that the value of these investments may have declined. If we determine an investment is impaired on an other-than-temporary basis, we record a loss equal to the difference between the fair value of the investment and its carrying amount. See “Note 6. Investments in Affiliated Companies.” Variable Interest Entities We evaluate whether an entity is a variable interest entity based on the sufficiency of the entity’s equity and by determining whether the equity holders have the characteristics of a controlling financial interest. To determine if we are the primary beneficiary of a variable interest entity, we assess whether we have the power to direct the activities that most significantly impact the economic performance of the entity as well as the obligation to absorb losses or the right to receive benefits that may be significant to the entity. These determinations are both qualitative and quantitative, and they require us to make judgments and assumptions about the entity’s forecasted financial performance and the volatility inherent in those forecasted results. We evaluate new investments for variable interest entity determination and regularly review all existing entities for events that may result in an entity becoming a variable interest entity or us becoming the primary beneficiary of an existing variable interest entity. Goodwill We recognize goodwill when the consideration paid to acquire a business exceeds the fair value of the net assets acquired. We assign goodwill to the same reporting unit as the net assets of the acquired business and we assess our goodwill for impairment on an annual basis in the fourth quarter, or if impairment indicators are present. If the carrying amount of the applicable reporting unit exceeds its fair value, we compare the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill. We 75 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) record an impairment loss if the carrying amount of goodwill exceeds its implied fair value. The fair values of our reporting units are determined using discounted cash flow models. See “Note 16. Goodwill.” Inventory Our inventory consists of railcar and locomotive repair components and marine vessel spare parts. All inventory balances are stated at lower of cost or market. Railcar repair components are valued using the average cost method. Vessel spare parts inventory is valued using the first-in, first-out method. Inventory is included in other assets on the balance sheet. Income Taxes We calculate provisions for federal, state, and foreign income taxes on our reported income before income taxes. We base our calculations of deferred tax assets and liabilities on the differences between the financial statement and tax bases of assets and liabilities, using enacted rates in effect for the year we expect the differences will reverse. We reflect the cumulative effect of changes in tax rates from those we previously used to determine deferred tax assets and liabilities in the provision for income taxes in the period the change is enacted. During 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted which included, among many comprehensive and complex provisions, a reduction of the U.S. corporate tax rate from 35 percent to 21 percent. As a result, we recorded a one-time non-cash net tax benefit of $315.9 million which represents our provisional estimate of the impact of the Tax Act. We will continue to evaluate the provisions of the Tax Act, and the ultimate impact may differ from this provisional estimate, due to, among other things, changes in interpretations and assumptions made by us, additional guidance that may be issued by the Internal Revenue Service and the U.S. Department of the Treasury, and actions we may take. Provisions for income taxes in any given period differ from those currently payable or receivable because certain items of income and expense are recognized in different periods for financial reporting purposes than for income tax purposes. We may deduct expenses or defer income attributable to uncertain tax positions for tax purposes, however, we have not recognized a tax benefit in the financial statements for those items. We include our liability for uncertain tax positions in other liabilities on the balance sheet. See “Note 12. Income Taxes.” Fair Value Measurements Fair value is the price that a market participant would receive to sell an asset or pay to transfer a liability in an orderly transaction at the measurement date. We classify fair value measurements according to the three-level hierarchy defined by GAAP, and those classifications are based on our judgment about the reliability of the inputs we use in the fair value measurement. Level 1 inputs are quoted prices available in active markets for identical assets or liabilities. Level 2 inputs are observable, either directly or indirectly, and may include quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. For assets or liabilities with a specified contractual term, Level 2 inputs must be observable for substantially the full term of that asset or liability. Level 3 inputs are unobservable, meaning they are supported by little or no market activity. Fair value measurements classified as Level 3 typically rely on pricing models and discounted cash flow methodologies, both of which require significant judgment. See “Note 8. Fair Value Disclosure.” Derivatives We use derivatives, such as interest rate swap agreements, Treasury rate locks, options, cross currency swaps, and currency forwards, to hedge our exposure to interest rate and foreign currency exchange rate risk on existing and anticipated transactions. We formally designate derivatives that meet specific accounting criteria as qualifying hedges at inception. These criteria require us to have the expectation that the derivative will be highly effective at offsetting changes in the fair value or expected cash flows of the hedged exposure, both at the inception of the hedging relationship and on an ongoing basis. We recognize all derivative instruments at fair value and classify them on the balance sheet as either other assets or other liabilities. We generally base the classification of derivative activity in the statements of comprehensive income and cash flows on the nature of the hedged item. For derivatives we designate as fair value hedges, we recognize changes in the fair value of both the derivative and the hedged item in earnings. For derivatives we designate as cash flow hedges, we record the effective portion of the change in the fair value of the derivative as part of other comprehensive income (loss), and we recognize those changes in earnings in the period the hedged transaction affects earnings. We recognize any ineffective portion of the change in the fair value of the derivative immediately in earnings. Although we do not hold or issue derivative financial instruments for purposes other than hedging, we may not designate certain derivatives as accounting hedges. We recognize changes in the fair value of these derivatives in earnings immediately. We 76 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) classify gains and losses on derivatives that are not designated as hedges as other expenses, and we include the related cash flows in cash flows from operating activities. See “Note 8. Fair Value Disclosure.” Foreign Currency We translate the assets and liabilities of our operations that have non-US dollar functional currencies at exchange rates in effect at year-end. Revenue, expenses, and cash flows are translated monthly using average exchange rates. We defer gains and losses resulting from foreign currency translation and record those gains and losses as a separate component of accumulated other comprehensive income (loss). Gains and losses resulting from foreign currency transactions and from the remeasurement of non-functional currency assets and liabilities are recognized net of related hedges in other expense during the periods in which they occur. Net gains (losses) recognized were $6.0 million, $(3.8) million and $1.1 million for 2017, 2016, and 2015. Environmental Liabilities We record accruals for environmental remediation costs at sites relating to past or discontinued operations when they are probable and when we can reasonably estimate the expected costs. We record adjustments to initial estimates as necessary. Since these accruals are based on estimates, actual environmental remediation costs may differ. We expense or capitalize environmental remediation costs related to current or future operations as appropriate. See “Note 22. Legal Proceedings and Other Contingencies.” Defined Benefit Pension and Other Post-Retirement Plans Our balance sheet reflects the funded status of our pension and post-retirement plans, which is the difference between the fair value of the plan assets and the projected benefit obligation. We recognize the aggregate overfunding of any plans in other assets, the aggregate underfunding of any plans in other liabilities, and the corresponding adjustments for unrecognized actuarial gains (losses) and prior service cost (credits) in accumulated other comprehensive income (loss). See “Note 10. Pension and Other Post-Retirement Benefits.” Maintenance and Repair Costs We expense maintenance and repair costs as incurred. We capitalize certain costs incurred in connection with planned major maintenance activities if those activities improve the asset or extend its useful life. We depreciate those capitalized costs over the estimated useful life of the improvement. We capitalize required regulatory survey costs for vessels and amortize those costs over the applicable survey period, which is generally five years. Operating Lease Expense We classify leases of certain railcars and other assets and facilities, such as maintenance facilities and equipment, as operating leases. We record the lease expense associated with these leases on a straight-line basis. We defer gains and financing costs associated with sale-leasebacks and amortize those gains and costs as a component of operating lease expense over the related leaseback term. We also classify our leases of office facilities and related administrative assets as operating leases, and we record the associated expense in selling, general and administrative expense. See “Note 5. Leases.” ASC Expense Seasonality ASC’s sailing season runs from April 1 to December 31 of each year. We defer certain expenses incurred prior to the beginning of the sailing season, such as winter maintenance, insurance, operating lease expense, and depreciation and amortize them ratably over the sailing season. Share-Based Compensation We base our measurement of share-based compensation expense on the grant date fair value of an award, and we recognize the expense over the requisite service period. Forfeitures are recorded when they occur. See “Note 11. Share-Based Compensation.” 77 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Net Gain on Asset Dispositions Net gain on dispositions includes gains and losses on sales of operating assets and residual sharing income, which we also refer to as asset remarketing income; non-remarketing disposition gains, primarily from scrapping of railcars; and asset impairment losses. We recognize disposition gains, including non-remarketing gains, upon completion of the sale or scrapping of operating assets. Residual sharing income includes fees we receive from the sale of managed assets and assets subject to residual value guarantees, and we recognize these fees upon completion of the underlying transactions. The following table presents the net gain on asset dispositions for the years ending December 31 (in millions): Net disposition gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Residual sharing income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-remarketing net disposition gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset impairment losses (1) Net Gain on Asset Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2017 2016 2015 44.1 $ 10.2 8.4 (8.6) 54.1 $ 49.7 $ 83.6 3.2 (38.5) 90.3 13.4 9.4 (33.9) 98.0 $ 79.2 (1) See “Note 9. Asset Impairments and Assets Held for Sale” for further information about asset impairment losses. Interest Expense, net Interest expense is the interest we accrue on indebtedness and the amortization of debt issuance costs and debt discounts and premiums. We defer debt issuance costs and debt discounts and premiums and amortize them over the term of the related debt. We report interest expense net of interest income on bank deposits. Interest income on bank deposits was $3.1 million in 2017, $1.9 million in 2016, and $1.1 million in 2015. Other Income (Expense) We include fair value adjustments on certain financial instruments, gains and/or losses on foreign currency transactions and remeasurements, legal defense costs and litigation settlements, along with other miscellaneous income and expense items in other income (expense). 78 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 4. Supplemental Cash Flow Information and Noncash Investing Transactions Supplemental Cash Flow Information (in millions) Interest paid (1) Income taxes paid, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2017 2016 2015 154.6 $ 21.5 $ 145.4 $ 28.6 $ 144.4 13.3 2017 2016 2015 Noncash Investing Transactions (in millions) Purchase of leased-in assets (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Capital lease (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.6 $ — $ — $ — $ — 17.8 (1) (2) (3) Interest paid consisted of interest on debt obligations, interest rate swaps (net of interest received), and capital leases. The interest expense we capitalized as part of the cost of construction of major assets was immaterial for all periods presented. In 2017, we acquired 1,224 railcars that were previously on operating lease for a cash payment of $20.7 million and assumed a debt obligation in the amount of $11.6 million. In 2015, we acquired all of the rights and obligations of 157 railcars, classified as a capital lease in the amount of $17.8 million, which included the assumption of a capital lease obligation in the amount of $14.8 million. NOTE 5. Leases GATX as Lessor The following table shows the components of our direct finance leases as of December 31 (in millions): Total contractual lease payments receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated unguaranteed residual value of leased assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 140.3 58.3 (62.5) 164.4 59.0 (75.7) Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 136.1 $ 147.7 2017 2016 Usage rents We base lease revenue for certain operating leases on equipment usage. Lease revenue from such usage rents was $64.5 million in 2017, $74.5 million in 2016, and $91.2 million in 2015. The decreases in 2017 and 2016 were driven by the redeployment of certain boxcars from utilization leases to fixed term leases. 79 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Future receipts The following table shows our future contractual receipts from finance leases and noncancelable operating leases as of December 31, 2017 (in millions): Finance Leases Operating Leases (1) Total 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Years thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 21.1 21.1 20.6 19.9 28.8 28.8 $ 947.7 755.8 589.9 424.8 302.8 524.8 968.8 776.9 610.5 444.7 331.6 553.6 $ 140.3 $ 3,545.8 $ 3,686.1 (1) The future contractual receipts due under our full-service operating leases include executory costs such as maintenance, car taxes, and insurance. GATX as Lessee Capital Lease Assets The following table shows assets we financed with capital lease obligations as of December 31 (in millions): Railcars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marine vessels (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: allowance for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 2016 $ $ $ 19.3 — (1.6) 18.9 62.1 (61.6) 17.7 $ 19.4 (1) During 2017, ASC purchased the vessel previously classified as a capital lease. Operating Leases We lease assets that are closely associated with our revenue generating operations. At December 31, 2017, we leased approximately 10,100 railcars at Rail North America. During 2017, ASC returned two vessels that were previously on operating leases. In addition, we lease office facilities and other general purpose equipment. Total operating lease expense, which includes amounts recorded in selling, general and administrative expense, was $67.4 million in 2017, $77.6 million in 2016, and $91.2 million in 2015. Lease Obligations For some leases, we have the option to renew the leases or purchase the underlying assets at the end of the lease term. The specific terms of the renewal and purchase options vary, and we did not include these amounts in our future contractual rental payments. Additionally, the contractual rental payments do not include amounts we are required to pay for licenses, taxes, insurance, and maintenance. 80 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table shows our future contractual rental payments due under noncancelable leases as of December 31, 2017 (in millions): 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Years thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: amounts representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Present value of future contractual capital lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ NOTE 6. Investments in Affiliated Companies Capital Leases Operating Leases 90.6 68.7 67.4 61.3 52.9 273.7 614.6 1.6 $ 11.6 — — — — 13.2 $ (0.7) 12.5 Investments in affiliated companies represent investments in and loans to domestic and foreign affiliates, and primarily include entities that lease aircraft spare engines, as well as companies offering lease financing and related services for customers operating rail assets. Loan amounts included in investments in affiliated companies were $6.5 million as of December 31, 2017 and $9.7 million as of December 31, 2016. During 2017, we recorded an impairment loss of $3.0 million to reflect a decline in the value of the railcars remaining in the Adler fleet. In 2015, as a result of our decision to exit the majority of our marine investments within our Portfolio Management segment, we recorded a $19.0 million impairment loss and then sold our 50% interest in the Cardinal Marine joint venture. We received aggregate cash proceeds of $24.7 million from this sale. In 2016 and 2017, we recognized gains of $1.0 million and $1.1 million resulting from additional contingent proceeds received as part of the sale. The following table presents our investments in affiliated companies and our ownership percentage in those companies by segment as of December 31, 2017 (in millions): Rolls-Royce & Partners Finance (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Management $ Adler Funding LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rail North America Southern Capital Corporation LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rail North America Investments in Affiliated Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 434.2 6.5 0.3 441.0 50.0% 12.5% 50.0% Segment Investment Percentage Ownership (1) Combined investment balances of sixteen separate joint ventures (collectively, the “RRPF affiliates”). 81 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table shows our share of affiliates’ pre-tax income by segment for the years ending December 31 (in millions): Rail North America (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rail International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Management (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of affiliates’ pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.4) $ (0.1) 58.4 55.9 (12.0) 0.5 $ (0.2) 52.8 53.1 (5.7) Share of Affiliates’ Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43.9 $ 47.4 $ 0.5 (0.3) 45.2 45.4 0.5 45.9 2017 2016 2015 (1) Amount for 2017 is net of impairment losses of $3.0 million. (2) Amount for 2015 is net of impairment losses of $19.0 million. The following table shows our cash investments in and distributions and loan payments from our affiliates by segment for the years ended December 31 (in millions): Cash Investments 2016 2017 2015 Cash Distributions (1) 2016 2017 2015 Rail North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . . — $ — $ — $ 0.7 $ 1.5 $ 36.6 25.0 15.5 30.2 35.2 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36.6 $ 25.0 $ 15.5 $ 30.9 $ 36.7 $ 5.1 32.2 37.3 (1) Cash distributions exclude proceeds from sales of affiliates of $2.3 million in 2017, $1.0 million in 2016, and $24.7 million in 2015. Summarized Financial Data of Affiliates The following table shows the aggregated operating results for the years ended December 31 for the affiliated companies we held at December 31 (in millions): Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net gains on sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.7 $ 27.4 100.4 333.7 $ 23.6 99.3 339.3 37.6 121.4 2017 2016 2015 The following table shows aggregated summarized balance sheet data for our affiliated companies as of December 31 (in millions): Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144.8 3,847.2 $ 254.1 3,363.6 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,992.0 $ 3,617.7 Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446.8 2,704.9 840.3 $ 551.0 2,341.4 725.3 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,992.0 $ 3,617.7 2017 2016 82 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Summarized Financial Data for the RRPF Affiliates As noted above, our affiliate investments include 50% interests in each of the RRPF affiliates, a group of sixteen 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: lease financing of aircraft spare engines to a diverse group of commercial aircraft operators worldwide and lease financing of aircraft spare engines to Rolls-Royce for use in their engine maintenance programs. In aggregate, the RRPF affiliates owned 432 aircraft engines at December 31, 2017, of which 229 were on lease to Rolls-Royce. Aircraft engines are generally depreciated over a useful life of 25 years to an estimated residual value. Lease terms vary but typically range from 3 to 12 years. Rolls-Royce manages each of the RRPF affiliates and also performs substantially all required maintenance activities. Our share of affiliates’ earnings (after-tax) from the RRPF affiliates was $44.8 million in 2017, $46.6 million in 2016, and $58.4 million in 2015. We derived the following financial information from the combined financial statements of the RRPF affiliates. The following table shows condensed income statements of the RRPF affiliates for the years ending December 31 (in millions): Lease revenue from third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Lease revenue from Rolls-Royce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gains on sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax benefits (provision) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 2016 2015 168.8 $ 176.0 (176.4) (64.3) (8.9) 20.5 115.7 (13.2) 173.7 $ 150.2 (171.6) (59.2) (8.0) 19.1 104.2 (6.9) 191.4 138.7 (166.1) (56.7) (8.8) 33.1 131.6 (9.0) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102.5 $ 97.3 $ 122.6 (1) Represents income taxes directly attributable to the RRPF affiliates in the United Kingdom. Several of the RRPF affiliates are disregarded entities for income tax purposes and, as a result, income taxes are incurred at the shareholder level. Amounts shown for 2016 and 2015 are net of income tax benefits of approximately $7.8 million and $15.4 million, attributable to statutory rate decreases enacted in the United Kingdom. The following table shows the condensed balance sheets of the RRPF affiliates as of December 31 (in millions): Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Noncurrent assets, including operating assets, net of accumulated depreciation of $943.5 and $1,007.4 (a) . . . 135.3 $ 3,772.4 241.3 3,281.9 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,907.7 $ 3,523.2 Current liabilities, excluding debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Debt obligations, net of adjustments for hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53.9 $ 2,751.1 274.1 828.6 127.3 2,452.9 233.8 709.2 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,907.7 $ 3,523.2 2017 2016 (a) All operating assets were pledged as collateral for long-term debt obligations. 83 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table shows contractual future lease receipts from noncancelable leases of the RRPF affiliates as of December 31, 2017 (in millions): Rolls-Royce Third Parties Total 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210.2 $ 203.4 185.2 158.9 148.6 465.9 153.2 $ 129.1 113.9 93.1 79.7 214.0 363.4 332.5 299.1 252.0 228.3 679.9 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,372.2 $ 783.0 $ 2,155.2 The following table shows maturities of debt obligations of the RRPF affiliates as of December 31, 2017 (in millions): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2018 (1) 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389.4 81.3 494.7 584.4 310.0 894.0 Total debt principal (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,753.8 (1) Includes $320.5 million related to bridge financing that is expected to be repaid and replaced by long-term financing in April, 2018. (2) All debt obligations are nonrecourse to the shareholders. NOTE 7. Debt Commercial Paper and Borrowings Under Bank Credit Facilities ($ in millions) Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Weighted average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.3 1.02% 3.8 1.02% December 31 2017 2016 84 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Debt Obligations The following table shows the outstanding balances of our debt obligations and the applicable interest rates as of December 31 ($ in millions): Date of Issue Final Maturity Interest Rate 2017 2016 Recourse Fixed Rate Debt Secured (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total recourse fixed rate debt . . . . . . . . . . . . . . . . . . . . . . . . . Recourse Floating Rate Debt Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total recourse floating rate debt . . . . . . . . . . . . . . . . . . . . . . . Total debt principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unamortized debt discount and debt issuance costs . . . . . . . . . . Debt adjustment for fair value hedges . . . . . . . . . . . . . . . . . . . . Total Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08/28/96 03/19/13 12/27/10 11/29/10 01/30/15 11/19/13 03/04/14 10/31/14 02/06/15 05/27/11 09/20/11 06/11/12 03/19/13 02/06/15 09/13/16 02/09/17 11/02/17 03/04/14 02/06/15 05/16/16 02/06/08 03/04/14 11/06/17 12/20/16 08/28/14 09/23/15 03/02/16 02/28/18 07/30/18 10/31/18 11/30/18 12/31/18 03/15/19 07/30/19 03/30/20 03/30/20 06/01/21 06/01/21 06/15/22 03/30/23 03/30/25 09/15/26 03/30/27 03/15/28 03/15/44 03/30/45 05/30/66 02/15/18 03/04/17 11/05/21 12/20/21 08/28/24 09/23/25 03/02/21 7.86% $ 2.38% 3.84% 3.70% 1.20% 2.50% 2.50% 2.60% 2.60% 4.85% 4.85% 4.75% 3.90% 3.25% 3.25% 3.85% 3.50% 5.20% 4.50% 5.63% 6.00% 1.25% $ 11.6 250.0 12.0 3.0 60.0 300.0 250.0 250.0 100.0 250.0 50.0 250.0 250.0 300.0 350.0 300.0 300.0 300.0 250.0 150.0 — — — 250.0 10.5 5.3 52.6 300.0 250.0 250.0 100.0 250.0 50.0 250.0 250.0 300.0 350.0 — — 300.0 250.0 150.0 200.0 300.0 $ 3,986.6 $ 3,868.4 2.11% $ 0.85% 2.78% 2.93% 2.57% 200.0 $ 66.0 100.0 60.0 — $ 426.0 $ — 57.8 100.0 60.0 200.0 417.8 $ 4,412.6 (36.2) (4.7) $ 4,286.2 (33.6) 0.6 $ 4,371.7 $ 4,253.2 (1) During 2017, we assumed this debt as part of a transaction to acquire railcars that were previously leased. (2) Amount shown includes scheduled principal payments prior to the final maturity. 85 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table shows the scheduled principal payments of our debt obligations as of December 31, 2017 (in millions): 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter Total debt principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 336.6 550.0 350.0 566.0 250.0 2,360.0 4,412.6 At December 31, 2017, $319.1 million of our operating assets were pledged as collateral for certain of our debt obligations and our secured credit facility. Shelf Registration Statement During 2016, we filed a shelf registration statement that enables us to issue debt securities and pass-through certificates. The registration statement is effective for three years and does not limit the amount of debt securities and pass-through certificates we can issue. Credit Lines and Facilities At December 31, 2017, we have a $600 million 5-year unsecured revolving credit facility in the U.S. that matures in May 2022. The full $600 million was available under the facility at December 31, 2017. In addition we have a $250 million 5-year secured railcar facility in the U.S. with a 3-year revolving period that matures in May 2022. As of December 31, 2017, the full $250 million was available under this facility. Annual commitment fees for GATX’s credit facilities were $2.0 million for 2017, $1.5 million for 2016, and $1.0 million for 2015. Restrictive Covenants Our $600 million revolving credit facility contains various restrictive covenants, including requirements to maintain a fixed charge coverage ratio and an asset coverage test. Our ratio of earnings to fixed charges, as defined in this facility, was 2.4 for the period ended December 31, 2017, which is in excess of the minimum covenant ratio of 1.2. At December 31, 2017, we were in compliance with all covenants and conditions of the facility. Some of our bank term loans have the same financial covenants as the facility. The indentures for our public debt also contain various restrictive covenants, including limitation on liens provisions that restrict the amount of additional secured indebtedness that we may incur. As of December 31, 2017, this limit was $1,415.5 million. Additionally, certain exceptions to the covenants permit us to incur an unlimited amount of purchase money and nonrecourse indebtedness. At December 31, 2017, we were in compliance with all covenants and conditions of the indentures. The loan agreements for our European rail subsidiaries ( “GATX Rail Europe” or “GRE”) also contain restrictive covenants, including leverage and cash flow covenants specific to those subsidiaries, restrictions on making loans, and limitations on the ability of those subsidiaries to repay loans or to distribute capital to certain related parties (including GATX, the U.S. parent company). These covenants effectively limit GRE’s ability to transfer funds to us. At December 31, 2017, the maximum amount that GRE could transfer to us without violating its covenants was $259.1 million, effectively restricting $398.3 million of subsidiary net assets. At December 31, 2017, GRE was in compliance with all covenants and conditions of these loan agreements. We do not anticipate any covenant violations nor do we anticipate that any of these covenants will restrict our operations or our ability to obtain additional financing. 86 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8. Fair Value Disclosure The following tables show our assets and liabilities that are measured at fair value on a recurring basis (in millions): Assets Quoted Prices in Active Markets for Identical Assets (Level 1) Total December 31 2017 Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange rate derivatives (1) Liabilities Interest rate derivatives (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange rate derivatives (1) . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange rate derivatives (2) 1.2 4.7 27.7 6.9 — — — — 1.2 4.7 27.7 6.9 — — — — Assets Quoted Prices in Active Markets for Identical Assets (Level 1) Total December 31 2016 Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Interest rate derivatives (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Foreign exchange rate derivatives (1) Foreign exchange rate derivatives (2) Liabilities Interest rate derivatives (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 $ 12.2 1.3 — $ — — 0.1 — 2.9 $ 12.2 1.3 0.1 — — — — (1) Designated as hedges. (2) Not designated as hedges. We value derivatives using a pricing model with inputs (such as yield curves and foreign currency rates) that are observable in the market or that can be derived principally from observable market data. In addition, we review long-lived assets, such as operating assets and facilities, for impairment whenever circumstances indicate that the carrying amount of these assets may not be recoverable. We determine the fair value of the respective assets using Level 3 inputs, including estimates of discounted future cash flows (including net proceeds from sale), independent appraisals, and market comparables, as applicable. The fair value of assets held at December 31 that were subject to non-recurring Level 3 fair value measurements was $32.2 million and $106.6 million for 2017 and 2016. See “Note 9. Asset Impairments and Assets Held for Sale” for further information about our impairment losses. Derivative instruments Fair Value Hedges We use interest rate swaps to manage the fixed-to-floating rate mix of our debt obligations by converting a portion of our fixed rate debt to floating rate debt. For fair value hedges, we recognize changes in fair value of both the derivative and the hedged item as interest expense. We had ten instruments outstanding with an aggregate notional amount of $550.0 million as of December 31, 2017 that mature from 2018 to 2022 and eight instruments outstanding with an aggregate notional amount of $550.0 million as of December 31, 2016 with maturities ranging from 2017 to 2020. 87 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Cash Flow Hedges We use interest rate swaps to convert floating rate debt to fixed rate debt. We use Treasury rate locks and swap rate locks to hedge our exposure to interest rate risk on anticipated transactions. We also use currency swaps to hedge our exposure to fluctuations in the exchange rates of the foreign currencies in which we conduct business. We had five instruments outstanding with an aggregate notional amount of $285.6 million as of December 31, 2017 that mature from 2019 to 2022 and nine instruments outstanding with an aggregate notional amount of $412.1 million as of December 31, 2016 with maturities ranging from 2017 to 2022. Within the next 12 months, we expect to reclassify $4.3 million ($2.7 million after-tax) of net losses on previously terminated derivatives from accumulated other comprehensive income (loss) to interest expense or operating lease expense, as applicable. We reclassify these amounts when interest and operating lease expense on the related hedged transactions affect earnings. Non-designated Derivatives We do not hold derivative financial instruments for purposes other than hedging, although certain of our derivatives are not designated as accounting hedges. We recognize changes in the fair value of these derivatives in other (income) expense immediately. Some of our derivative instruments contain credit risk provisions that could require us to make immediate payment on net liability positions in the event that we default on certain outstanding debt obligations. The aggregate fair value of our derivative instruments with credit risk related contingent features that are in a liability position as of December 31, 2017 was $32.4 million. We are not required to post any collateral on our derivative instruments and do not expect the credit risk provisions to be triggered. In the event that a counterparty fails to meet the terms of an interest rate swap agreement or a foreign exchange contract, our exposure is limited to the fair value of the swap, if in our favor. We manage the credit risk of counterparties by transacting with institutions that we consider financially sound and by avoiding concentrations of risk with a single counterparty. We believe that the risk of non-performance by any of our counterparties is remote. The following table shows the impacts of our derivative instruments on our statement of comprehensive income for the years ended December 31 (in millions): Derivative Designation Location of Loss (Gain) Recognized 2017 2016 2015 Interest expense Fair value hedges (1) . . . . . Cash flow hedges . . . . . . . . Other comprehensive loss (effective portion) Cash flow hedges . . . . . . . . Interest expense (effective portion reclassified from accumulated other comprehensive loss) Cash flow hedges . . . . . . . . Operating lease expense (effective portion reclassified from accumulated other comprehensive loss) Cash flow hedges (2) . . . . . Other (income) expense (effective portion reclassified from accumulated other comprehensive loss) Non-designated (3) . . . . . . Other (income) expense $ $ 5.3 (41.5) 6.8 0.1 38.9 8.0 $ 0.8 4.9 6.9 1.1 (11.9) (2.6) (0.8) 5.3 5.6 0.3 (6.9) (6.1) (1) The fair value adjustments related to the underlying debt equally offset the amounts recognized in interest expense. (2) For each of 2017, 2016 and 2015, includes (income) expense on foreign currency derivatives that are substantially offset by foreign currency remeasurement adjustments on related hedged instruments, also recognized in Other (income) expense. (3) For 2015, includes $5.1 million of gains on foreign currency derivatives which substantially offset losses from foreign currency remeasurement adjustments from a euro-denominated loan attributable to the sale of an affiliate in a prior year, also recognized in Other (income) expense. 88 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Other Financial Instruments The carrying amounts of cash and cash equivalents, restricted cash, rent and other receivables, accounts payable, and commercial paper and bank credit facilities approximate fair value due to the short maturity of those instruments. We base the fair values of investment funds, which are accounted for under the cost method, on the best information available, which may include quoted investment fund values. We estimate the fair values of loans and fixed and floating rate debt using discounted cash flow analyses that are based on interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The inputs we use to estimate each of these values are classified in Level 2 of the fair value hierarchy because they are directly or indirectly observable inputs. The following table shows the carrying amounts and fair values of our other financial instruments as of December 31 (in millions): 2017 Carrying Amount 2017 Fair Value 2016 Carrying Amount 2016 Fair Value Assets Investment funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities Recourse fixed rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,971.2 $ 4,089.1 $ 3,858.5 $ 3,852.6 412.2 Recourse floating rate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 $ 6.2 0.6 $ — 1.2 $ — 1.2 6.2 417.8 426.0 428.7 NOTE 9. Asset Impairments and Assets Held for Sale We review our operating assets annually, or whenever indicators of impairment maybe present. The following table summarizes the components of asset impairments for the years ending December 31 (in millions): 2017 2016 2015 Attributable to Consolidated Assets Rail North America - certain railcars in flammable service . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Management - marine assets to be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — 8.6 $ 29.8 6.7 2.0 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.6 $ 38.5 $ Attributable to Affiliate Investments Rail North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Management $ $ 3.0 $ — $ — $ — $ — 30.8 3.1 33.9 — 19.0 In 2015, the Pipeline and Hazardous Materials Safety Administration of the U.S. Department of Transportation (“PHMSA”) and Transport Canada (“TC”) each issued rules that established new design standards for tank cars utilized in flammable liquids service in North America. In addition to setting standards for newly built tank cars, the regulations established guidelines for modifying existing tank cars utilized in certain flammable liquids service and deadlines for modifying or removing those cars from service. The deadlines range from November 2016 to May 2029, depending on the type of car and the nature of commodity carried. The PHMSA rule was subsequently modified by legislation adopted by Congress, and in August 2016, PHMSA amended its earlier rule to incorporate the legislative mandates into the final rule, which included expanded retrofit requirements and a shorter phase out period for the older tank cars. During 2016, excess railcar supply, muted demand for certain railcar types, and increased railroad efficiency combined to put pressure on lease rates for most car types. Within the flammable tank car market, the challenge of keeping existing tank cars in service was compounded by the increased availability of newer cars with enhanced designs, including those that comply with the new 89 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) regulations, to serve this market. Further, our expectations of redeploying certain tank cars in flammable service into nonflammable service diminished as a substantial oversupply of tank cars developed to serve these alternative markets. We expected those conditions to continue and potentially worsen. As a result of those changed expectations, we believed indicators of impairment were present for certain tank cars impacted by the new regulations, and a comprehensive impairment analysis was completed. While all railcars subject to the new regulations were reviewed, approximately 2,400 railcars with a carrying value of approximately $90 million were determined to be most vulnerable based on their age, configuration, and carrying values. For purposes of this review, we modeled multiple scenarios of net cash flows using a range of assumptions, including revised estimated useful lives for these railcars. Based on this analysis, we concluded that our carrying values exceeded our estimates of projected undiscounted cash flows, indicating an impairment for this group of railcars. The market for this group of railcars is fairly illiquid, given the circumstances noted above. Accordingly, the fair value of this railcar group was estimated based on discounting our estimated cash flows using a discount rate we believe reflected the applicable return for typical buyers and sellers of these types of assets. Concurrently with this analysis, we entered into an agreement to sell approximately 400 of these railcars, for total proceeds consistent with our valuations. As a result, we recorded impairment losses of $29.8 million related to these tank cars, of which $5.8 million was attributable to assets held for sale. The total carrying value of assets held for sale at Rail North America was $43.9 million at December 31, 2016, including the impaired tank cars that were written down to their expected net sales proceeds. Lastly, we shortened the depreciable lives for these tank cars consistent with our revised expectations, beginning January 1, 2017; however, the impact of adjusting the useful lives for these assets was not material to subsequent financial results. In 2015, we made the decision to exit the majority of our marine investments within the Portfolio Management segment, including six chemical parcel tankers (the “Nordic Vessels”), certain inland marine vessels, and our 50% interest in the Cardinal Marine joint venture. As a result of this decision, we recorded impairment losses of $6.7 million and $30.8 million in 2016 and 2015 related to certain of the consolidated marine assets. Initial impairment losses recorded in 2015 were determined by adjusting the assets classified as held for sale to the lower of their respective carrying amounts or fair value less costs to sell. Subsequent impairment losses in 2016 were recorded, based on final disposition results and revised estimates of expected net sales proceeds for assets that remained classified as held for sale at December 31, 2016. Additionally, Portfolio Management recorded impairment losses of $19.0 million in 2015 related to our 50% interest in the Cardinal Marine joint venture, based on expected proceeds from the final sale of this investment, which was completed in 2015. As of December 31, 2017, we completed the sales of all of the planned marine assets that were previously classified as held for sale. In 2017, 2016 and 2015 disposition gains of $1.8 million, $5.2 million, and $21.6 million were realized from the sale of these marine assets. Other impairment losses recorded in each year on consolidated assets were primarily attributable to railcars we have retired early due to excess damage or functional obsolescence and designated for scrap. In 2017, an impairment loss of $3.0 million attributable to affiliate investments was related to our investment in Adler Funding LLC, resulting from a decline in the value of certain railcars in the fleet. In the consolidated statements of comprehensive income, impairment losses related to consolidated assets were included in net (loss) gains on asset dispositions, and impairment losses related to affiliate investments were recorded in share of affiliates’ earnings. The following table summarizes the components of assets held for sale at December 31 (in millions): Rail North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 $ — 43.9 45.6 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.5 $ 89.5 2017 2016 All assets classified as held for sale at December 31, 2017 are expected to be sold in 2018. 90 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 10. Pension and Other Post-Retirement Benefits We maintain both funded and unfunded noncontributory defined benefit pension plans covering our domestic employees and the employees of our subsidiaries. We also have a funded noncontributory defined benefit pension plan related to a former business in the United Kingdom that has no active employees. The plans base benefits payable on years of service and/or final average salary. We base our funding policies for the pension plans on actuarially determined cost methods allowable under IRS regulations and statutory requirements in the UK. In addition to the pension plans, we have other post-retirement plans that provide health care, life insurance, and other benefits for certain retired domestic employees who meet established criteria. Most domestic employees that retire with immediate benefits under our pension plan are eligible for health care and life insurance benefits. The other post-retirement plans are either contributory or noncontributory, depending on various factors. During 2015, we offered an early retirement program for certain eligible employees, effective in 2016. This program provided enhanced benefits to the employees that elected to participate and provided the option for employees to receive their pension benefits as a lump sum payment or as an annuity. Special termination benefits of $9.0 million resulting from this program were recognized as a one-time expense in 2015. In 2016, we recorded a settlement accounting expense of $6.1 million attributable to lump sum payments elected by the eligible retirees as part of the program. We use a December 31 measurement date for all of our plans. The following tables show pension obligations, plan assets, and other post-retirement obligations as of December 31 (in millions): 2017 Pension Benefits 2016 Pension Benefits 2017 Retiree Health and Life 2016 Retiree Health and Life Change in Benefit Obligation Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of foreign exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464.4 $ 6.5 15.4 34.8 (44.2) 3.2 475.0 $ 6.1 15.3 18.3 (44.5) (5.8) 30.3 $ 0.2 1.1 5.5 (3.4) — 35.0 0.2 0.9 (3.0) (2.8) — Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 480.1 $ 464.4 $ 33.7 $ 30.3 Change in Fair Value of Plan Assets Plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 413.5 61.3 3.4 1.6 (44.2) 435.6 $ 416.1 45.8 (6.1) 2.2 (44.5) 413.5 $ — — — 3.4 (3.4) — $ — — — 2.8 (2.8) — Funded Status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (44.5) $ (50.9) $ (33.7) $ (30.3) Amount Recognized Other liabilities and other assets (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Accumulated other comprehensive loss: Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44.5) $ (50.9) $ (33.7) $ (30.3) 132.5 (0.1) 132.4 144.1 (0.1) 144.0 2.8 (1.6) 1.2 (2.9) (1.8) (4.7) Total recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87.9 $ 93.1 $ (32.5) $ (35.0) After-tax amount recognized in accumulated other comprehensive loss (gain) . . . . . . $ 82.7 $ 90.0 $ 0.9 $ (2.9) 91 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The aggregate accumulated benefit obligation for the defined benefit pension plans was $457.0 million at December 31, 2017 and $441.8 million at December 31, 2016. The following table shows our pension plans that have a projected benefit obligation in excess of plan assets as of December 31 (in millions): 2017 2016 Projected benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.7 $ 299.9 430.8 378.8 The following table shows our pension plans that have an accumulated benefit obligation in excess of plan assets as of December 31 (in millions): Accumulated benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.1 $ — 126.4 94.4 The following table shows the components of net periodic cost (benefit) for the year ended December 31 (in millions): 2017 2016 2017 Pension Benefits 2016 Pension Benefits 2015 Pension Benefits 2017 Retiree Health and Life 2016 Retiree Health and Life 2015 Retiree Health and Life Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlement accounting adjustment Amortization of: 6.5 $ 15.4 (24.0) 0.2 6.1 $ 15.3 (25.6) 6.1 7.4 $ 19.6 (25.8) 7.3 0.2 $ 1.1 — — 0.2 $ 0.9 — — 0.2 1.3 — 1.7 Unrecognized prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . — 9.3 (1.0) 10.5 (1.0) 14.8 (0.2) (0.3) (0.2) (0.3) (0.1) (0.2) Net periodic cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.4 $ 11.4 $ 22.3 $ 0.8 $ 0.6 $ 2.9 We amortize the unrecognized prior service credit using a straight-line method over the average remaining service period of the employees we expect to receive benefits under the plan. We amortize the unrecognized net actuarial loss (gain), which is subject to certain averaging conventions, over the average remaining service period of active employees. The following table shows the amounts we expect to recognize as components of net periodic cost in 2018 from amounts recorded in accumulated comprehensive loss (gain) as of December 31, 2017 (in millions): Unrecognized net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Unrecognized prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9 $ — — (0.2) Pension Benefits Retiree Health and Life 92 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) We use the following assumptions to measure the benefit obligation, compute the expected long-term return on assets, and measure the periodic cost for our defined benefit pension plans and other post-retirement benefit plans for the years ended December 31: 2017 2016 Domestic defined benefit pension plans Benefit Obligation at December 31: Discount rate — salaried funded plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate — salaried unfunded plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate — hourly funded plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of compensation increases — salaried funded and unfunded plans . . . . . . . . . . . . . . . . . . Rate of compensation increases — hourly funded plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Periodic Cost (Benefit) for the years ended December 31: Discount rate — salaried funded and unfunded plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate — hourly funded plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets — salaried funded plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets — hourly funded plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of compensation increases — salaried funded and unfunded plans . . . . . . . . . . . . . . . . . . Rate of compensation increases — hourly funded plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign defined benefit pension plan Benefit Obligation at December 31: Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of pension-in-payment increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Periodic Cost (Benefit) for the years ended December 31: Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of pension-in-payment increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other post-retirement benefit plans Benefit Obligation at December 31: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate - salaried health (1) Discount rate - hourly health (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate - combined health (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate - salaried life insurance (1) Discount rate - hourly life insurance (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate - combined life insurance (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of compensation increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Periodic Cost (Benefit) for the years ended December 31: Discount rate - salaried health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate - hourly health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate - salaried life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate - hourly life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of compensation increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) In 2017, the salaried and hourly plans for health and life insurance were combined. 93 3.68% 4.22% 3.07% - 3.45% 3.24% - 3.83% 4.30% 2.50% N/A 3.73% 2.50% N/A 4.23% 4.31% 6.25% 6.15% 2.50% N/A 2.40% 3.10% 2.60% 4.20% 3.20% N/A N/A 3.40% N/A N/A 3.66% N/A 3.67% 4.00% 4.19% 3.84% N/A 4.47% 4.52% 6.80% 6.75% 2.50% N/A 2.60% 3.20% 3.60% 4.80% 3.00% 3.78% 4.09% N/A 4.18% 3.83% N/A N/A 3.94% 4.31% 4.41% 4.06% N/A GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) We calculate the present value of expected future pension and post-retirement cash flows as of the measurement date using a discount rate. We base the discount rate on yields for high-quality, long-term bonds with durations similar to that of our projected benefit obligation. We base the expected return on our plan assets on current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. We routinely review our historical returns along with current market conditions to ensure our expected return assumption is reasonable and appropriate. 2017 2016 Assumed Health Care Cost Trend Rates at December 31 Health care cost trend assumed for next year Medical claims - pre age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Medical claims - post age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prescription drugs claims - pre age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prescription drugs claims - post age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.70% 4.90% 11.10% 11.10% Rate to which the cost trend is expected to decline (the ultimate trend rate) Medical claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prescription drugs claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50% 4.50% Year that rate reaches the ultimate trend rate Medical claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prescription drugs claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 2025 6.60% 5.80% 9.30% 9.80% 4.50% 4.50% 2022 2024 The health care cost trend, which is based on projected growth rates for medical and prescription drug claims, has an effect on our other post-retirement benefit costs and obligations. The following table shows the effects of a one percentage point change in the health care cost trend rate on service and interest costs for the year ended December 31, 2017 and the post-retirement benefit obligation as of December 31, 2017 (in millions) : Effect on total of service and interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Effect on post-retirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — $ 1.1 — (1.0) One Percentage Point Increase One Percentage Point Decrease 94 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Our investment policies require that asset allocations of domestic and foreign funded pension plans be maintained at certain targets. The following table shows our weighted-average asset allocations of our domestic funded pension plans at December 31, 2017 and 2016, and current target asset allocation for 2018, by asset category: Asset Category Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset Category Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan Assets for Salaried Employees at December 31 Target 2017 2016 50.7% 45.5% 3.8% —% 50.7% 44.8% 3.7% 0.8% 53.1% 41.2% 4.6% 1.1% 100.0% 100.0% 100.0% Plan Assets for Hourly Employees at December 31 Target 2017 2016 38.2% 58.0% 3.8% —% 39.4% 56.8% 3.7% 0.1% 48.6% 45.4% 5.9% 0.1% 100.0% 100.0% 100.0% The following table shows the weighted-average asset allocations of our foreign funded pension plan at December 31, 2017 and 2016, and current target asset allocation for 2018, by asset category: Asset Category Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan Assets at December 31 Target 2017 2016 36.8% 63.2% 100.0% 36.0% 64.0% 100.0% 37.7% 62.3% 100.0% 95 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables set forth the fair value of our pension plan assets as of December 31 (in millions): Assets measured at net asset value (1): Short-term investment funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common stock collective trust funds . . . . . . . . . . . . . . . . . . . . . . . . . Fixed income group trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate collective trust funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quoted Prices in Active Markets for Identical Assets (Level 1) Total December 31 2017 Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $ 2.6 $ 2.6 $ — $ — 204.1 211.0 14.8 3.1 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 435.6 $ 2.6 $ — $ — Assets measured at net asset value (1): Short-term investment funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common stock collective trust funds . . . . . . . . . . . . . . . . . . . . . . . . . Fixed income group trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate collective trust funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quoted Prices in Active Markets for Identical Assets (Level 1) Total December 31 2016 Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $ 3.1 $ 3.1 $ — $ — 210.4 151.4 18.7 29.9 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 413.5 $ 3.1 $ — $ — (1) In accordance with the relevant accounting standards, investments measured at fair value using the net asset value per share (or its equivalent) practical expedient are not recorded in any specific category of the fair value hierarchy. The following is a description of the valuation techniques and inputs used as of December 31, 2017 and 2016. Short-term investment funds We value short-term investment funds based on the closing net asset values (“NAV”) quoted by the funds. Short-term investment funds are highly liquid investments in obligations of the U.S. Government, or its agencies or instrumentalities, and the related money market instruments. The short-term investment funds have no unfunded commitments, restrictions on redemption frequency, or advance notice periods required for redemption. The funds seek to provide safety of principal, daily liquidity, and a competitive yield over the long term. Common stock We value common stock traded in an active market at the last reported sales price on the last business day of the plan year. 96 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Common stock collective trust funds, fixed income collective trust funds, and fixed income group trust We value common stock collective trust funds, fixed income collective trust funds, and fixed income group trusts based on the closing NAV prices quoted by the funds. None of the collective trusts or the group trust have unfunded commitments, restrictions on redemption frequency, or advance notice periods required for redemption. The investment objective of each of the common stock funds is long-term total return through capital appreciation and current income. The fixed income funds are each designed to deliver safety and stability by preserving principal and accumulated earnings. The group trust seeks to achieve, over an extended period of time, total returns comparable or superior to broad measures of the long-term domestic investment grade credit bond market. Real estate collective trust funds We value real estate collective trust funds based on the NAV provided by the funds’ administrators. A lack of liquidity in the funds may limit or delay redemptions. The investment objective of the real estate funds, which are diversified by location and property type, is long-term return through property appreciation, current income, and timely sales. Loan fund The loan fund is a limited liability company (“LLC”) and is valued using the NAV provided by the administrator of the fund. As of December 31, 2017, the GATX Master Trust held investments in one LLC. Generally, capital may be withdrawn as of the last day of the month upon written notice given on no later than 30 days prior to the withdrawal date. The investment manager may determine in its discretion to allow withdrawals on any such other date. The LLC fund seeks to achieve risk-adjusted total returns by buying and selling investments that are anticipated to have a primarily bank loan focus. Investments will be primarily in debt securities of midsize and large capitalizations. There are no unfunded commitments. The primary investing objective of the pension plans is to provide benefits to plan participants and their beneficiaries. To achieve this goal, we invest in a diversified portfolio of equities, debt, and real estate investments to maximize return and to keep long-term investment risk at a reasonable level. Equity investments are diversified across U.S. and non-U.S. stocks, growth and value stocks, and small cap and large cap stocks. Debt securities are predominately investments in long-term, investment-grade corporate bonds. Real estate investments include investments in funds that are diversified by location and property type. On a timely basis, but not less than twice a year, we formally review pension plan investments to ensure we adhere to investment guidelines and our stated investment approach. Our review also evaluates the reasonableness of our investment decisions and risk positions. We compare our investments’ performance to indices and peers to determine if investment performance has been acceptable. In 2018, we expect to contribute approximately $6.4 million to our pension and other post-retirement benefit plans. Additional contributions to the domestic funded pension plans will depend on investment returns on plan assets and actuarial experience. The following table shows benefit payments, which reflect expected future service, as appropriate, we expect the plans to pay (in millions): Funded Plans Unfunded Plans Retiree Health and Life 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Years 2023-2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27.4 27.7 27.7 28.0 28.1 142.5 $ 3.0 3.6 3.9 3.9 4.4 20.3 3.4 3.4 3.2 3.0 2.8 11.4 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 281.4 $ 39.1 $ 27.2 97 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In addition to our defined benefit plans, we have two 401(k) retirement plans available to substantially all salaried employees and certain other employee groups. We may contribute to the plans as specified by their respective terms and as our board of directors determines. Contributions to our 401(k) retirement plans were $1.9 million for 2017, $1.8 million for 2016, and $1.9 million for 2015. Multiemployer Plans Most of the shipboard personnel at ASC participate in various multiemployer benefit plans that provide pension, health care, and post-retirement and other benefits to active and retired employees. Unlike single employer plans, we do not recognize plan assets or obligations for multiemployer plans on our balance sheet. Rather, we recognize our contributions to the plans as marine operating expenses. The amounts we contribute are based on the number of crew hours worked, which depends on the number of vessels deployed and aggregate operating days in a particular year. The risks of participating in these multiemployer plans are different from single employer plans in the following aspects: • • • Assets contributed by one employer may be used to provide benefits to employees of other participating employers; If a participating employer fails to make its required contributions, any unfunded obligations of the plan may be the responsibility of the remaining participating employers; and If an employer chooses to stop participating in a multiemployer plan, the plan may require the withdrawing company to make additional contributions. The following table shows our contributions to multiemployer benefit plans for the years indicated (in millions): Multiemployer Plans EIN and Pension Plan Number American Maritime Officers Pension Plan (1) . . . . . . . . . . . . . 13-1969709-001 Other multiemployer post-retirement plans . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension Protection Act Zone Status Endangered- Yellow GATX Contributions 2017 2016 2015 $ $ 2.3 $ 6.1 8.4 $ 1.2 $ 5.9 7.1 $ 1.4 6.8 8.2 Collective Bargaining Agreement Expiration Date February 7, 2021 (1) Our contributions represented more than 5% of the total contributions to the plan during each year and no surcharge was imposed for any year. The actuary for the American Maritime Officers Pension Plan certified that the plan is in endangered status (i.e. “yellow zone” as defined by the Pension Protection Act of 2006) for the plan year beginning October 1, 2013, because of funding or liquidity problems, or both. A rehabilitation plan, as defined by the Employee Retirement Security Act of 1974, was instituted under which certain adjustable benefits were reduced or eliminated, and we are required to contribute at a negotiated rate per day worked by each employee. NOTE 11. Share-Based Compensation We provide equity awards to our employees under the GATX Corporation 2012 Incentive Award Plan, including grants of non-qualified stock options, stock appreciation rights, restricted stock units, performance shares, and phantom stock awards. As of December 31, 2017, 6.8 million shares were authorized under the 2012 Plan and 4.1 million shares were available for future issuance. We recognize compensation expense for our equity awards in selling, general and administrative expenses over the applicable service period of each award. Share-based compensation expense was $14.3 million for 2017, $15.8 million for 2016, and $11.6 million for 2015, and the related tax benefits were $5.5 million for 2017, $6.0 million for 2016, and $4.4 million for 2015. 98 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Stock Options and Stock Appreciation Rights Stock options and stock appreciation rights entitle the holder to purchase shares of common stock for periods up to seven years from the grant date. Stock appreciation rights entitle the holder to receive the difference between the market price of our common stock at the time of exercise and the exercise price, either in shares of common stock, cash, or a combination thereof, at our discretion. Stock options entitle the holder to purchase shares of our common stock at a specified exercise price. The dividends that accrue on all stock options and stock appreciation rights are paid upon vesting and continue to be paid until the stock options or stock appreciation rights are exercised, canceled, or expire. The exercise price for stock options and stock appreciation rights is equal to the average of the high and low trading prices of our common stock on the date of grant. We recognize compensation expense on a straight-line basis over the vesting period of the award, which is generally three years. The estimated fair value of a stock option or stock appreciation right is the sum of the value we derive using the Black-Scholes option pricing model and the present value of dividends we expect to pay over the expected term of the award. The Black-Scholes valuation incorporates various assumptions, including expected term, expected volatility, and risk free interest rates. We base the expected term on historical exercise patterns and post-vesting terminations, and we base the expected volatility on the historical volatility of our stock price over a period equal to the expected term. We use risk-free interest rates that are based on the implied yield on recently-issued U.S. Treasury zero-coupon bonds with a term comparable to the expected term. The following table shows the weighted average fair value for our stock options and stock appreciation rights and the assumptions we used to estimate fair value: Weighted average estimated fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quarterly dividend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected term of stock options and stock appreciation rights, in years . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Present value of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ 19.40 $ 0.42 $ 4.7 1.9% 2.8% 27.7% 7.50 $ 13.86 $ 0.40 $ 4.7 1.4% 4.1% 29.4% 7.27 $ 18.16 0.38 4.7 1.2% 2.6% 29.2% 6.90 2017 2016 2015 The following table shows information about outstanding stock options and stock appreciation rights for the year ended December 31, 2017: Outstanding at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited/Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested and exercisable at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of Stock Options and Stock Appreciation Rights (in thousands) Weighted Average Exercise Price 1,648 $ 354 (257) (20) (2) 1,723 977 46.73 61.18 44.14 50.79 26.16 50.07 48.72 99 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table shows the aggregate intrinsic value of stock options and stock appreciation rights exercised in 2017, 2016, and 2015, and the weighted average remaining contractual term and aggregate intrinsic value of stock options and stock appreciation rights outstanding and vested as of December 31, 2017: Stock Options and Stock Appreciation Rights Exercised in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised in 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised in 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted Average Remaining Contractual Term (Years) Outstanding at December 31, 2017 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested and exercisable at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 2.7 (a) As of December 31, 2017, 966,115 stock appreciation rights and 756,788 stock options were outstanding. Aggregate Intrinsic Value (in millions) $ 6.2 6.2 4.4 20.9 13.1 Total cash received from employees for exercises of stock options during the year ended December 31, 2017 was $1.6 million. No cash was received from employees for exercises of stock options during the years ended December 31, 2016 and December 31, 2015. As of December 31, 2017, we had $7.0 million of unrecognized compensation expense related to nonvested stock options and stock appreciation rights, which we expect to recognize over a weighted average period of 1.7 years. Restricted Stock Units and Performance Shares Restricted stock units entitle the recipient to receive a specified number of restricted shares of common stock upon vesting. Restricted stock units do not carry voting rights and are not transferable prior to the expiration of a specified restriction period, which is generally three years, as determined by the Compensation Committee of the Board of Directors (“Compensation Committee”). We accrue dividends on all restricted stock units and pay those dividends when the awards vest. We recognize compensation expense for these awards over the applicable vesting period. Performance shares are restricted shares that we grant to key employees for achieving certain strategic objectives. The shares convert to common stock at the end of a specified performance period if predetermined performance goals are achieved, as determined by the Compensation Committee. We estimate the number of shares we expect will vest as a result of actual performance against the performance criteria at the time of grant to determine total compensation expense to be recognized. We reevaluate the estimate annually and adjust total compensation expense for any changes to the estimate of the number of shares we expect to vest. The performance shares granted include an option to settle shares earned in cash upon vesting for certain eligible employees. As a result, these awards are accounted for as liability awards, and the liability and related compensation expense is adjusted to reflect the fair value of the underlying shares at the end of each reporting period. We recognize compensation expense for these awards over the applicable vesting period, which is generally three years. We value our restricted stock units and performance share awards using the average of the high and low values of our common stock on the grant date of the awards. As of December 31, 2017, there was $8.4 million of unrecognized compensation expense related to these awards, which we expect to be recognized over a weighted average period of 1.7 years. 100 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table shows information about restricted stock units and performance shares for the year ended December 31, 2017: Number of Share Units Outstanding (in thousands) Weighted Average Grant- Date Fair Value Restricted Stock Units: Nonvested at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonvested at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance Shares: Nonvested at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase due to estimated performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonvested at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 $ 49 (56) (10) 187 143 $ 64 4 (50) 161 49.23 61.18 54.87 51.32 50.62 44.81 59.77 47.11 55.54 46.25 The total fair value of restricted stock units and performance shares that vested during the year was $6.5 million in 2017, $7.5 million in 2016, and $7.2 million in 2015. Phantom Stock Awards We grant phantom stock awards to non-employee directors as a component of their compensation for service on our board of directors. In accordance with the terms of the phantom stock awards, each director is credited with a quantity of units that equate to, but are not, common shares. Phantom stock awards are dividend participating, and all dividends are reinvested in additional phantom shares at the average of the high and low trading prices of our stock on the dividend payment date. At the expiration of each director’s service on the board of directors, or in accordance with his or her deferral election, whole units of phantom stock will be settled with shares of common stock and fractional units will be paid in cash. In 2017, we granted 24,195 units of phantom stock and there were 208,163 units outstanding as of December 31, 2017. 101 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12. Income Taxes On December 22, 2017, the Tax Cuts and Jobs Act. (the “Tax Act”) was enacted and in 2017 we recorded a one-time non-cash net tax benefit of $315.9 million, which represents our provisional estimate of the impact of the Tax Act. This amount includes a net benefit of $371.4 million associated with the re-measurement of our net deferred tax liability utilizing the lower U.S. tax rate. The Tax Act also imposed a one-time transitional repatriation tax of $57.2 million on certain undistributed earnings of our non-U.S. subsidiaries and affiliates. The Tax Act made broad and complex changes to the U.S. tax laws. In particular, the U.S. corporation income tax rate was reduced to 21% from 35%, and a new territorial tax system was implemented that will affect the future U.S. taxation of earnings repatriated from our foreign subsidiaries and affiliates. Other provisions included an immediate deduction for qualified investments and limitations on the deductibility of interest expense and executive compensation. Due to our current net operating loss position, these adjustments had no cash impact on our tax positions. We will continue to evaluate the provisions of the Tax Act, and the ultimate impact may differ from this provisional estimate, due to, among other things, changes in interpretations and assumptions made by us, additional guidance that may be issued by the Internal Revenue Service and the U.S. Department of the Treasury, and actions that we may take. In addition, these estimates may change due to guidance provided by state taxing authorities and the completion of our 2017 U.S. and state income tax returns. Deferred income taxes are the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We expect to continue to reinvest foreign earnings outside the U.S. indefinitely. Consequently, our tax provision does not include any amount for incremental taxes that may result from the future repatriation of remaining undistributed earnings of non-U.S. subsidiaries and affiliates. If, future earnings are repatriated to the U.S., or if we expect such earnings to be repatriated, a provision for additional taxes may be required. The Tax Act generally provides an exemption from U.S. income tax on the future repatriation of earnings from our foreign subsidiaries and affiliates; however, incremental income tax may occur from withholding taxes, foreign exchange gains, or other taxable gains recognized in connection with tax basis differences in our investments in these foreign investments. The ultimate tax cost of repatriating these earnings will depend on tax laws in effect and other circumstances at the time of distribution. The following table shows the significant components of our deferred tax liabilities and assets as of December 31 (in millions): Deferred Tax Liabilities Book/tax basis difference due to depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Investments in affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred Tax Assets Federal net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alternative minimum tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance on state net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance on foreign net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accruals not currently deductible for tax purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension and post-retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 2016 872.8 43.6 9.0 6.3 931.7 $ 1,119.1 69.5 11.1 1.0 1,200.7 4.1 8.0 29.5 (10.3) 2.1 (0.4) 21.7 1.1 19.6 2.6 78.0 — 8.0 25.4 (12.9) 2.9 (0.3) 26.7 1.5 30.9 29.1 111.3 Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 853.7 $ 1,089.4 102 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) At December 31, 2017, we have a U.S. federal tax net operating loss carryforward of $4.1 million that will expire in 2037. We also have an alternative minimum tax credit of $8.0 million which may be utilized or refunded over the next four years. At December 31, 2017, we have state net operating losses of $29.5 million, net of federal benefits that are scheduled to expire at various times beginning in 2018. We have recorded a $10.3 million valuation allowance related to state net operating losses, as we believe it is more likely than not that we will be unable to use all of these losses. Our use of future operating losses depends on a number of variables, including the amount of taxable income, and state apportionment factors. Additionally, we have foreign net operating losses, net of valuation allowances, of $1.7 million which have an unlimited carryforward period. At December 31, 2017, all uncertainties for unrecognized tax benefits have been resolved. During the year ended December 31, 2017, based upon the status of our current state income tax audits and our expectations of the ultimate resolution, we reversed the remaining balance of our unrecognized tax benefits and recognized an income tax benefit of $4.3 million ($2.8 million, net of federal tax). During the year ended December 31, 2016, we reduced our unrecognized tax benefit by $1.4 million based on a final determination ruling for a disputed state tax filing position. We file one consolidated federal income tax return with our domestic subsidiaries in the U.S. jurisdiction, as well as tax returns in various state and foreign jurisdictions. As of December 31, 2017, all audits or statute of limitations with respect to our federal tax returns for years prior to 2014 have been closed or expired. Additionally, we currently have five ongoing state income tax audits. The following table shows the components of income before income taxes and share of affiliates’ earnings for the years ending December 31 (in millions): Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 124.5 89.9 $ 211.0 94.4 174.7 95.6 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 214.4 $ 305.4 $ 270.3 2017 2016 2015 The following table shows income taxes for the years ending December 31 (in millions): 2017 2016 2015 Current Domestic: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.1) $ (0.1) Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred Domestic: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.2) 18.0 16.8 (270.0) 1.2 (268.8) 8.3 (260.5) Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (243.7) $ 6.0 — 6.0 16.9 22.9 55.8 10.5 66.3 6.5 72.8 95.7 $ 5.6 (0.2) 5.4 15.3 20.7 44.7 33.7 78.4 11.8 90.2 $ 110.9 103 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table shows the differences between our effective income tax rate and the federal statutory income tax rate for the years ending December 31 (in millions): Income taxes at federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Adjust for effect of: 2017 2016 2015 75.0 $ 106.9 $ 94.6 Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign earnings taxed at lower rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State tax rate change impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Cuts and Jobs Act: — (5.5) (0.9) (0.5) 5.0 (0.9) Revaluation of deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transition tax on non-U.S. earnings and profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (371.4) 57.2 (1.7) Total Tax Act Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (315.9) (7.8) (9.7) (1.7) 6.8 — 1.2 — — — — — (6.2) (0.9) 7.6 14.1 1.7 — — — — Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (243.7) $ 95.7 $ 110.9 Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (113.7)% 31.3% 41.0% In 2017, our effective tax rate was (113.7)% compared to 31.3% in 2016 and 41.0% in 2015. The current year effective tax rate reflects the provisional net benefit recorded attributable to the Tax Act. Excluding the impact of the Tax Act adjustment, our effective tax rate was 33.7% in 2017. The reduction of the U.S. corporate tax rate to 21.0% has caused us to adjust our U.S. deferred tax assets and liabilities from a combined effective tax rate of 38.3% to 25.1%, resulting in a one-time non-cash tax benefit of $371.4 million. The Tax Act also implements a new territorial tax system which resulted in a one-time transitional repatriation tax of $57.2 million on certain undistributed earnings of our non-U.S. subsidiaries and affiliates. The 2017 effective tax rate also reflects incremental deferred state income taxes of $5.0 million associated with a change in our consolidated effective state tax rate, primarily due to an increase in the state of Illinois corporate tax rate. The 2016 effective tax rate reflected the utilization of $7.8 million in foreign tax credits. The 2015 effective tax rate reflected incremental deferred state income taxes of $14.1 million associated with a change in our consolidated effective state tax rate. Specifically, the sale of certain marine assets in our Portfolio Management segment negatively impacted our future state apportionment factors, increasing our overall effective state income tax rate. Additionally, the 2015 rate reflected a higher contribution from domestic source income, which is taxed at a higher rate, as well as the impact of an increase in the statutory tax rate in Alberta, Canada. The adjustment for foreign earnings in each year reflects the impact of lower tax rates on income earned at our foreign subsidiaries. State income taxes are recognized on domestic pre-tax income or loss. The amount of our domestic income subject to state taxes relative to our total worldwide income impacts the effect state income tax has on our overall income tax rate. Separately, our affiliates incurred income taxes of $12.0 million and $5.7 million, respectively, in 2017 and 2016, and an income tax benefit of $0.5 million in 2015. The 2016 and 2015 amounts were favorably impacted by deferred tax benefits of $3.9 million and $7.7 million, respectively, as a result of income tax rate reductions enacted in the United Kingdom. NOTE 13. Concentrations Concentration of Revenues We derived revenue from a wide range of industries and companies. In 2017, we generated approximately 26% of our total revenues from customers in the petroleum industry, 19% from the chemical industry, 16% from the transportation industry, 9% from food/agriculture industries, and 8% from the mining, minerals and aggregates industry. Our foreign identifiable revenues were primarily derived in Canada, Germany, Poland, Mexico, and Austria. 104 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Concentration of Credit Risk We did not have revenue concentrations greater than 10% from any particular customer for any of the years ended December 31, 2017, 2016, and 2015. Under our lease agreements with customers, we typically retain legal ownership of the assets unless such assets have been financed by sale-leasebacks. We perform a credit evaluation prior to approval of a lease contract. Subsequently, we monitor the creditworthiness of the customer and the value of the collateral on an ongoing basis. We maintain an allowance for losses to provide for credit losses inherent in our reservable assets portfolio. Concentration of Labor Force As of December 31, 2017, collective bargaining agreements covered approximately 45% of our employees, of which agreements covering 7% of employees will expire within the next year. The hourly employees at our US service centers are represented by the United Steelworkers. Employees at three of Rail North America’s Canadian service centers are represented by Unifor, the union formerly known as the Communication, Energy and Paperworkers Union of Canada, and the Employee Shop Committee of Riviere- des-Prairies. The unlicensed shipboard personnel on nine of the ASC vessels are represented by the Seafarers International Union. Licensed personnel on ASC’s vessels, other than captains, are represented by the American Maritime Officers. Certain employees of GATX Rail Europe are represented by one union in Germany and three unions in Poland. NOTE 14. Commercial Commitments We have entered into various commercial commitments, such as guarantees, standby letters of credit, and performance bonds, related to certain transactions. These commercial commitments require us to fulfill specific obligations in the event of third-party demands. Similar to our balance sheet investments, these commitments expose us to credit, market, and equipment risk. Accordingly, we evaluate these commitments and other contingent obligations using techniques similar to those we use to evaluate funded transactions. The following table shows our commercial commitments as of December 31 (in millions): Lease payment guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Standby letters of credit and performance bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total commercial commitments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2017 2016 4.9 17.8 22.7 $ $ 15.0 8.9 23.9 (1) The carrying value of liabilities on the balance sheet for commercial commitments was $2.0 million at December 31, 2017 and $3.0 million at December 31, 2016. The expirations of these commitments range from 2018 to 2023. We are not aware of any event that would require us to satisfy any of our commitments. Lease payment guarantees are commitments to financial institutions to make lease payments for a third party in the event they default. We reduce any liability that may result from these guarantees by the value of the underlying asset or group of assets. We are also parties to standby letters of credit and performance bonds, which primarily relate to contractual obligations and general liability insurance coverages. No material claims have been made against these obligations, and no material losses are anticipated. NOTE 15. Earnings per Share We compute basic earnings per share by dividing net income available to our common shareholders by the weighted average number of shares of our common stock outstanding. We weighted shares issued or reacquired during the year for the portion of the year that they were outstanding. Our diluted earnings per share reflect the impacts of our potentially dilutive securities, which include our equity compensation awards. 105 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table shows the computation of our basic and diluted net income per common share for the years ending December 31 (in millions, except per share amounts): 2017 2016 2015 Numerator: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 502.0 $ 257.1 $ 205.3 Denominator: Weighted average shares outstanding - basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of dilutive securities: Equity compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.8 0.6 40.5 0.4 Weighted average shares outstanding - diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39.4 12.95 $ 40.9 6.35 $ Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12.75 $ 6.29 $ 43.1 0.7 43.8 4.76 4.69 NOTE 16. Goodwill Our goodwill, all of which pertains to Rail North America and Rail International, was $85.6 million as of December 31, 2017 and $78.0 million as of December 31, 2016. In the fourth quarter of 2017, we performed a review for impairment of goodwill, and concluded that goodwill was not impaired. For 2017 and 2016, changes in the carrying amount of our goodwill resulted from fluctuations in foreign currency exchange rates. NOTE 17. Allowance for Losses The following table shows changes in the allowance for losses at December 31 (in millions): Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charges to allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recoveries and other, including foreign exchange adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.1 0.6 0.2 (0.5) 10.3 4.0 (9.1) 0.9 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.4 $ 6.1 2017 2016 The allowance for losses is comprised of a general allowance for trade receivables and specific allowances for finance leases. As of December 31, 2017, the general allowance for trade receivables was $6.4 million, or 7.7% of rent and other receivables, compared to $6.1 million, or 7.1% of rent and other receivables at December 31, 2016. At December 31, 2017 and 2016 there were no specific allowances for finance leases. 106 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 18. Other Assets and Other Liabilities The following table shows the components of other assets reported on our balance sheets as of December 31 (in millions): 2017 2016 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Office furniture, fixtures and other equipment, net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . Prepaid items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57.2 20.5 16.9 6.2 4.5 3.8 1.2 0.5 — 80.1 $ 51.3 27.9 15.1 1.1 89.5 4.5 16.4 0.5 6.2 84.6 Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 190.9 $ 297.1 Assets held for sale at December 31, 2016 consisted of Portfolio Management marine assets, resulting from management’s decision to exit the majority of our marine investments within the Portfolio Management segment, as well as certain railcars at Rail North America. For additional information see “Note 9. Asset Impairments and Assets Held for Sale”. The following table shows the components of other liabilities reported on our balance sheets as of December 31 (in millions): 2017 2016 Accrued pension and other post-retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Deferred gains on sale-leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Environmental accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84.4 55.9 39.3 13.1 8.3 3.1 — 29.1 $ 82.3 54.0 0.1 14.9 22.2 3.8 2.8 42.0 Total other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 233.2 $ 222.1 NOTE 19. Shareholders’ Equity In 2016, our board of directors authorized a $300 million share repurchase program. During 2017, we purchased 1.7 million shares of common stock for $100.0 million, including commissions. In 2016, we purchased 2.7 million shares of common stock for $120.1 million. In 2015, we purchased 2.4 million shares of common stock for $125.4 million, which completed our $250 million repurchase program authorized in 2014. On January 26, 2018, our board of directors approved an additional share repurchase authorization of $170 million, bringing GATX’s aggregate available repurchase authorization to $250 million. 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. In accordance with our certificate of incorporation, 120 million shares of common stock are authorized, at a par value of $0.625 per share. As of December 31, 2017, 67.1 million shares were issued and 37.9 million shares were outstanding. 107 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following shares of common stock were reserved as of December 31, 2017 (in millions): GATX Corporation 2004 Equity Incentive Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Corporation 2012 Incentive Award Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 6.8 9.0 Our certificate of incorporation also authorizes five million shares of preferred stock at a par value of $1.00 per share. We had no outstanding shares of preferred stock as of December 31, 2017 and December 31, 2016. NOTE 20. Accumulated Other Comprehensive Income (Loss) The following table shows the change in components for accumulated other comprehensive loss (in millions): Foreign Currency Translation Gain (Loss) Unrealized Gain (Loss) on Securities Unrealized Loss on Derivative Instruments Post- Retirement Benefit Plans Total Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . $ Change in component . . . . . . . . . . . . . . . . . . . . . . . . . Reclassification adjustments into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax effect (21.9) $ (55.8) — — Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . Change in component . . . . . . . . . . . . . . . . . . . . . . . . . Reclassification adjustments into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax effect Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . Change in component . . . . . . . . . . . . . . . . . . . . . . . . . Reclassification adjustments into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax effect (77.7) (26.0) — — (103.7) 93.2 — — 0.3 $ (1.0) — 0.4 (0.3) 2.5 (1.9) (0.3) — — — — (19.1) $ 1.6 (1.0) (2.4) (107.7) $ (0.9) 13.5 (4.8) (20.9) 7.3 (3.9) (2.8) (20.3) (39.6) 45.8 (1.4) (99.9) 11.7 9.0 (7.9) (87.1) (3.2) 8.8 (2.1) Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . $ (10.5) $ — $ (15.5) $ (83.6) $ (148.4) (56.1) 12.5 (6.8) (198.8) (4.5) 3.2 (11.0) (211.1) 50.4 54.6 (3.5) (109.6) See “Note 8. Fair Value Disclosure” and “Note 10. Pension and Other Post-Retirement Benefits” for impacts of the reclassification adjustments on the statement of comprehensive income. NOTE 21. Foreign Operations For the years ended December 31, 2017, 2016, and 2015, we did not derive revenues in excess of 10% of our consolidated revenues from any one foreign country. Additionally, at December 31, 2017 and 2016, we did not have more than 10% of our identifiable assets in any one foreign country. 108 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table shows our domestic and foreign revenues and identifiable assets for the years ended or as of December 31 (in millions): Revenues Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324.0 $ 320.7 $ 1,052.9 1,097.6 329.4 1,120.5 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,376.9 $ 1,418.3 $ 1,449.9 2017 2016 2015 Identifiable Assets Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,407.2 $ 2,098.2 $ 1,992.3 4,901.9 United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,007.2 5,015.2 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,422.4 $ 7,105.4 $ 6,894.2 NOTE 22. Legal Proceedings and Other Contingencies Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against GATX and certain of our subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved or settled adversely. Viareggio Derailment In June 2009, a train consisting of fourteen liquefied petroleum gas (“LPG”) tank cars owned by GATX Rail Austria GmbH and its subsidiaries (collectively, “GRA”) derailed while passing through the City of Viareggio, in the province of Lucca, Italy. Five tank cars overturned and one of the overturned cars was punctured by a peg or obstacle along the side of the track, resulting in a release of LPG, which subsequently ignited. The accident resulted in multiple deaths, personal injuries and property damage. The LPG tank cars were leased to FS Logistica S.p.A., a subsidiary of the Italian state-owned railway, Ferrovie dello Stato S.p.A (the “Italian Railway”). On December 14, 2012, the prosecutors for Lucca charged the Italian Railway, GRA, and a number of their maintenance, operations, and managerial employees with various negligence-based crimes related to the accident. A trial was held in the court of Lucca and, on January 31, 2017, the court announced guilty verdicts against various Italian Railway companies, GRA, and certain of their employees. The court imposed a fine of 1.4 million Euros against GRA and prison sentences against the employees. GRA disagrees with the trial court’s ruling and believes that the evidence shows it and its employees acted diligently and in accordance with all applicable laws and regulations at all times. On October 14, 2017, GRA filed its appeal of the trial court’s ruling with the Court of Appeal in Florence (Corte d’Appello di Firenze) and, pending the final disposition of the appeal, these fines and penalties are not enforceable. With respect to civil claims, the insurers for the Italian Railway and GRA have fully settled and resolved most of the claims arising out of the accident. With respect to unsettled claims, the Lucca court ordered all convicted defendants (including various Italian Railway entities and GRA) to pay final damages or advances to the remaining 56 claimants. The amount of these awards is immaterial and GRA expects that its insurers will continue to cover most of these damages to claimants except for a small number of civil claims. GRA will continue to incur legal expenses for the criminal appeals although they are not expected to be material. We cannot predict the outcome of the appeals process and thus cannot reasonably estimate the possible amount or range of costs that may be ultimately incurred in connection with this litigation. Other Litigation GATX and its subsidiaries have been named as defendants in various other legal actions and claims, governmental proceedings, and private civil suits arising in the ordinary course of business, including environmental matters, workers’ compensation claims, and other personal injury claims. Some of these proceedings include claims for punitive as well as compensatory damages. Several of our subsidiaries have also been named as defendants or co-defendants in cases alleging injury caused by exposure to asbestos. The plaintiffs seek an unspecified amount of damages based on common law, statutory, or premises liability or, in the case 109 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) of claims against ASC, the Jones Act, which provides limited remedies to certain maritime employees. During 2017, courts dismissed five asbestos cases without any payment by GATX, and GATX settled three additional cases for an immaterial amount. As of January 31, 2018, there were 17 remaining asbestos-related cases pending against GATX and its subsidiaries, which included three new asbestos cases filed during 2017. In addition, demand has been made against GATX for asbestos-related claims under limited indemnities given in connection with the sale of certain of our former subsidiaries. It is possible that the number of these cases or claims for indemnity could begin to grow and that the cost of these cases, including costs to defend, could correspondingly increase in the future. Litigation Accruals We have recorded accruals totaling $3.7 million at December 31, 2017 for losses related to those litigation matters that we believe to be probable and for which an amount of loss can be reasonably estimated. However, we cannot determine a reasonable estimate of the maximum possible loss or range of loss for these matters given that they are at various stages of the litigation process and each case is subject to the inherent uncertainties of litigation (such as the strength of our legal defenses and the availability of insurance recovery). Although the maximum amount of liability that may ultimately result from any of these matters cannot be predicted with absolute certainty, management expects that none of the matters for which we have recorded an accrual, when ultimately resolved, will have a material adverse effect on our consolidated financial position or liquidity. It is possible, however, that the ultimate resolution of one or more of these matters could have a material adverse effect on our results of operations in a particular quarter or year if such resolution results in liability that materially exceeds the accrued amount. In addition, we have other litigation matters pending for which we have not recorded any accruals because our potential liability for those matters is not probable or cannot be reasonably estimated based on currently available information. For those matters where we have not recorded an accrual but a loss is reasonably possible, we cannot determine a reasonable estimate of the maximum possible loss or range of loss for these matters given that they are at various stages of the litigation process and each case is subject to the inherent uncertainties of litigation (such as the strength of our legal defenses and the availability of insurance recovery). Although the maximum amount of liability that may ultimately result from any of these matters cannot be predicted with absolute certainty, management expects that none of the matters for which we have not recorded an accrual, when ultimately resolved, will have a material adverse effect on our consolidated financial position or liquidity. It is possible, however, that the ultimate resolution of one or more of these matters could have a material adverse effect on our results of operations in a particular quarter or year if such resolution results in a significant liability for GATX. Environmental Our operations are subject to extensive federal, state, and local environmental regulations. Our operating procedures include practices to protect the environment from the risks inherent in full service railcar leasing, which involves maintaining railcars used by customers to transport chemicals and other hazardous materials. Under some environmental laws in the U.S. and certain other countries, the owner of a leased railcar may be liable for environmental damage and cleanup or other costs in the event of a spill or discharge of material from a railcar without regard to the owner’s fault. While our standard master railcar lease agreement requires the lessee to indemnify us against environmental claims and to carry liability insurance coverage, such indemnities and insurance may not fully protect us against claims for environmental damage. Additionally, some of our real estate holdings, including previously owned properties, are or have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities might have resulted in discharges on the property. As a result, we are subject to environmental cleanup and enforcement actions. the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the Superfund law, as well as similar state laws, impose joint and several liability for 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. If there are other potentially responsible parties (“PRPs”), we generally contribute to the cleanup of these sites through cost-sharing agreements with terms that vary from site to site. Costs are typically allocated based on the relative volumetric contribution of material, the period of time the site was owned or operated, and/or the portion of the site owned or operated by each PRP. In particular, At the time a potential environmental issue is identified, initial accruals for environmental liability are established when such liability is determined to be probable and a reasonable estimate of the associated costs can be made. Costs are estimated based on the type and level of investigation and/or remediation activities that our internal environmental staff (and where appropriate, independent consultants) have advised to be necessary to comply with applicable laws and regulations. Activities include surveys and environmental studies of potentially contaminated sites as well as costs for remediation and restoration of sites determined to be contaminated. In addition, we have provided indemnities for potential environmental liabilities to buyers of divested companies. In 110 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) these instances, accruals are based on the scope and duration of the respective indemnities together with the extent of known contamination. Estimates are periodically reviewed and adjusted as required to reflect additional information about facility or site characteristics or changes in regulatory requirements. We conduct a quarterly environmental contingency analysis, which considers a combination of factors including independent consulting reports, site visits, legal reviews, analysis of the likelihood of participation in and the ability of other PRPs to pay for cleanup, and historical trend analyses. We are involved in administrative and judicial proceedings and other voluntary and mandatory cleanup efforts at 16 sites, including Superfund sites, for which we are contributing to the cost of performing the study or cleanup, or both, of alleged environmental contamination. As of December 31, 2017, we have recorded accruals of $13.1 million for remediation and restoration costs that we believe to be probable and for which the amount of loss can be reasonably estimated. These amounts are included in other liabilities on our balance sheet. Our environmental liabilities are not discounted. We did not materially change our methodology for identifying and calculating environmental liabilities in the last three years. Currently, no known trends, demands, commitments, events or uncertainties exist that are reasonably likely to occur and materially affect the methodology or assumptions described above. The recorded accruals represent our best estimate of all costs for remediation and restoration of affected sites, without reduction for anticipated recoveries from third parties, and include both asserted and unasserted claims. However, we are unable to provide a reasonable estimate of the maximum potential loss associated with these sites because cleanup costs cannot be predicted with certainty. Various factors beyond our control can impact the amount of loss GATX will ultimately incur with respect to these sites, including the extent of corrective actions that may be required; evolving environmental laws and regulations; advances in environmental technology, the extent of other parties’ participation in cleanup efforts; developments in periodic environmental analyses related to sites determined to be contaminated, and developments in environmental surveys and studies of potentially contaminated sites. As a result, future charges associated with these sites could have a significant effect on results of operations in a particular quarter or year if the costs materially exceed the accrued amount as individual site studies and remediation and restoration efforts proceed. However, management believes it is unlikely that the ultimate cost to GATX for any of these sites, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position or liquidity. 111 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 23. Financial Data of Business Segments The financial data presented below depicts the profitability, financial position, and capital expenditures of each of our business segments. We lease, operate, manage, and remarket long-lived, widely-used assets, primarily in the rail market. We report our financial results through four primary business segments: Rail North America, Rail International, American Steamship Company (“ASC”), and Portfolio Management. Rail North America is composed of our operations in the United States, Canada, and Mexico, as well as an affiliate investment. Rail North America primarily provides railcars pursuant to full-service leases under which it maintains the railcars, pays ad valorem taxes and insurance, and provides other ancillary services. Rail International is composed of our operations in Europe (“GATX Rail Europe” or “GRE”), India (“Rail India”), and Russia (“Rail Russia”). GRE leases railcars to customers throughout Europe pursuant to full-service leases under which it maintains the railcars and provides value-adding services according to customer requirements. ASC operates the largest fleet of US-flagged vessels on the Great Lakes, providing waterborne transportation of dry bulk commodities such as iron ore, coal, limestone aggregates, and metallurgical limestone. 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 “Norgas Vessels”) and assorted other marine assets. In prior years, Portfolio Management generated leasing, marine operating, asset remarketing, and management fee income through a collection of diversified wholly owned assets and joint venture investments. In 2015, we made the decision to exit the majority of the marine investments, excluding the Norgas Vessels, within our Portfolio Management segment, including six chemical parcel tankers, a number of inland marine vessels, and our 50% interest in the Cardinal Marine joint venture, all of which have been sold as of December 31, 2017. Segment profit is an internal performance measure used by the Chief Executive Officer to assess the performance of each segment in a given period. Segment profit includes all revenues, pre-tax earnings from affiliates, and net gains on asset dispositions that are attributable to the segments, as well as expenses that management believes are directly associated with the financing, maintenance, and operation of the revenue earning assets. 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. We allocate debt balances and related interest expense to each segment based upon predetermined debt to equity leverage ratios. Due to the changes in the composition of our segments, we modified segment leverage levels for 2016. The leverage levels for 2017 and 2016 were 5:1 for Rail North America, 3:1 for Rail International, 1.5:1 for ASC, and 1:1 for Portfolio Management. For 2015, the leverage levels were 5:1 for Rail North America, 2:1 for Rail International, 1.5:1 for ASC, and 3:1 for Portfolio Management. We believe that by using this leverage and interest expense allocation methodology, each operating segment’s financial performance reflects appropriate risk-adjusted borrowing costs. 112 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables show certain segment data for the years ended December 31, 2017, 2016, and 2015 (in millions): Rail North America Rail International ASC Portfolio Management Other GATX Consolidated 2017 Profitability Revenues Lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Marine operating revenue . . . . . . . . . . . . . . . . . . . . Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899.9 $ — 77.5 Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 977.4 Expenses Maintenance expense . . . . . . . . . . . . . . . . . . . . . . . Marine operating expense . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . Operating lease expense . . . . . . . . . . . . . . . . . . . . . Other operating expense . . . . . . . . . . . . . . . . . . . . . Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income (Expense) Net gain (loss) on asset dispositions . . . . . . . . . . . . Interest (expense) income, net . . . . . . . . . . . . . . . . Other (expense) income . . . . . . . . . . . . . . . . . . . . . Share of affiliates’ pre-tax (loss) income . . . . . . . . 265.0 — 239.4 60.7 28.7 593.8 45.2 (121.2) (5.9) (2.4) 190.3 $ — 6.8 197.1 41.1 — 48.9 — 4.7 94.7 3.1 (33.4) (3.2) (0.1) 4.1 $ 168.4 — 172.5 22.2 106.2 12.0 1.8 — 142.2 (1.9) (5.2) 1.3 — 3.8 $ 25.0 1.1 — $ — — 29.9 — 24.8 7.0 — 1.0 32.8 7.7 (9.2) 2.3 58.4 — — — — — — — — 8.5 (5.6) — 2.9 1,098.1 193.4 85.4 1,376.9 328.3 131.0 307.3 62.5 34.4 863.5 54.1 (160.5) (11.1) 55.9 451.8 181.5 (231.7) 502.0 Segment profit . . . . . . . . . . . . . . . . . . . . . . . . . . $ 299.3 $ 68.8 $ 24.5 $ 56.3 $ Less: Selling, general and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes (includes $12.0 related to affiliates’ earnings) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net Gain (Loss) on Asset Dispositions Asset Remarketing Income: Disposition gains (losses) on owned assets . . . . $ Residual sharing income . . . . . . . . . . . . . . . . . . . Non-remarketing disposition gains (losses) (1) . . . Asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . $ Capital Expenditures 44.0 $ 0.6 5.2 (4.6) 45.2 $ 0.1 $ — 3.3 (0.3) (1.8) $ — (0.1) — 3.1 $ (1.9) $ 1.8 $ 9.6 — (3.7) 7.7 $ — $ — — — — $ 44.1 10.2 8.4 (8.6) 54.1 Portfolio investments and capital additions . . . . . . $ 460.9 $ 90.9 $ 14.0 $ 36.6 $ 1.0 $ 603.4 Selected Balance Sheet Data Investments in affiliated companies . . . . . . . . . . . . $ Identifiable assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1) Includes scrapping gains. 6.8 $ 4,915.0 $ — $ 1,332.9 $ — $ 286.7 $ 434.2 $ 582.8 $ — $ 305.0 $ 441.0 7,422.4 113 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Rail North America Rail International ASC Portfolio Management Other GATX Consolidated — $ — — — 1,127.1 199.3 91.9 1,418.3 2016 Profitability Revenues Lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Marine operating revenue . . . . . . . . . . . . . . . . . . . . Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935.1 $ — 83.4 Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 1,018.5 Expenses Maintenance expense . . . . . . . . . . . . . . . . . . . . . . . Marine operating expense . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . Operating lease expense . . . . . . . . . . . . . . . . . . . . . Other operating expense . . . . . . . . . . . . . . . . . . . . . Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income (Expense) Net gain on asset dispositions . . . . . . . . . . . . . . . . . Interest (expense) income, net . . . . . . . . . . . . . . . . Other (expense) income . . . . . . . . . . . . . . . . . . . . . Share of affiliates’ pre-tax income (loss) . . . . . . . . 266.5 — 231.8 67.6 34.1 600.0 16.6 (110.1) (3.6) 0.5 182.0 $ — 7.0 189.0 47.2 — 45.5 — 5.3 98.0 1.1 (29.7) 0.8 (0.2) 4.2 $ 150.0 — 154.2 18.6 96.7 12.9 6.0 — 134.2 — (4.5) (5.4) — 5.8 $ 49.3 1.5 56.6 — 32.8 7.0 — 4.4 44.2 80.3 (8.6) — 52.8 — — — (0.1) — (0.1) — 4.8 (3.6) — Segment profit . . . . . . . . . . . . . . . . . . . . . . . . . . $ 321.9 $ 63.0 $ 10.1 $ 136.9 $ 1.3 Less: Selling, general and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes (includes $5.7 related to affiliates’ earnings) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net Gain on Asset Dispositions Asset Remarketing Income: Disposition gains on owned assets . . . . . . . . . . . $ Residual sharing income . . . . . . . . . . . . . . . . . . . Non-remarketing disposition gains (1) . . . . . . . . . . Asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . 45.5 $ 0.8 1.5 (31.2) $ 16.6 $ — $ — 1.7 (0.6) 1.1 $ — $ — — — — $ 4.2 $ 82.8 — (6.7) 80.3 $ — $ — — — — $ 332.3 129.5 297.2 73.5 43.8 876.3 98.0 (148.1) (11.8) 53.1 533.2 174.7 101.4 257.1 49.7 83.6 3.2 (38.5) 98.0 Capital Expenditures Portfolio investments and capital additions . . . . . . $ Selected Balance Sheet Data Investments in affiliated companies . . . . . . . . . . . . $ Identifiable assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1) Includes scrapping gains. 495.6 $ 87.1 $ 9.1 $ 25.0 $ 3.9 $ 620.7 10.5 $ 4,775.6 $ 1.2 $ 1,128.7 $ — $ 278.8 $ 375.3 $ — $ 593.5 $ 328.8 $ 387.0 7,105.4 114 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Rail North America Rail International ASC Portfolio Management Other GATX Consolidated — $ — — — 1,130.1 235.0 84.8 1,449.9 2015 Profitability Revenues Lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Marine operating revenue . . . . . . . . . . . . . . . . . . . . Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 930.9 $ — 75.9 Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 1,006.8 Expenses Maintenance expense . . . . . . . . . . . . . . . . . . . . . . . Marine operating expense . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . Operating lease expense . . . . . . . . . . . . . . . . . . . . . Other operating expense . . . . . . . . . . . . . . . . . . . . . Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income (Expense) Net gain (loss) on asset dispositions . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of affiliates’ pre-tax income (loss) (1) . . . . . 264.2 — 215.1 82.2 26.2 587.7 67.2 (102.1) (5.2) 0.5 172.9 $ — 7.5 180.4 39.6 — 43.7 — 5.1 88.4 6.8 (22.4) (6.0) (0.3) 4.1 $ 166.1 — 170.2 22.3 107.2 14.3 5.2 — 149.0 (0.1) (5.3) (0.7) — 22.2 $ 68.9 1.4 92.5 — 48.7 17.4 — 7.1 73.2 5.3 (20.0) — 45.2 Segment profit (loss) . . . . . . . . . . . . . . . . . . . . . $ 379.5 $ 70.1 $ 15.1 $ 49.8 $ — — — (0.2) — (0.2) — (5.3) (1.3) — (6.4) Less: Selling, general and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes (includes $0.5 net benefits related to affiliates’ earnings) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net Gain (Loss) on Asset Dispositions Asset Remarketing Income: Disposition gains on owned assets . . . . . . . . . . . $ Residual sharing income . . . . . . . . . . . . . . . . . . . Non-remarketing disposition gains (losses) (2) . . . Asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . $ Capital Expenditures 66.6 $ 0.8 2.3 (2.5) 67.2 $ — $ — 7.2 (0.4) — $ — (0.1) — 6.8 $ (0.1) $ 23.7 $ 12.6 — (31.0) 5.3 $ — $ — — — — $ 326.1 155.9 290.5 87.2 38.4 898.1 79.2 (155.1) (13.2) 45.4 508.1 192.4 110.4 205.3 90.3 13.4 9.4 (33.9) 79.2 Portfolio investments and capital additions . . . . . . $ 524.5 $ 148.0 $ 20.3 $ 18.4 $ 3.5 $ 714.7 Selected Balance Sheet Data Investments in affiliated companies . . . . . . . . . . . . $ Identifiable assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12.0 $ 4,629.1 $ 1.4 $ 1,117.6 $ — $ 284.7 $ — $ 335.1 $ 636.5 $ 226.3 $ 348.5 6,894.2 (1) Includes a $19.0 million impairment loss in the Portfolio Management segment. (2) Includes scrapping gains. 115 GATX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 24. Selected Quarterly Financial Data (unaudited) First Quarter Second Quarter Third Quarter (2) In millions, except per share data Fourth Quarter (3) Total 2017 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Per Share Data (1) Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2016 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Per Share Data (1) Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 316.1 $ 57.5 $ 348.4 $ 53.4 $ 1.46 $ 1.44 $ 1.37 $ 1.35 $ 334.4 $ 69.3 $ 358.9 $ 61.2 $ 1.67 $ 1.66 $ 1.51 $ 1.49 $ 359.6 $ 49.0 $ 1.27 $ 1.25 $ 362.9 $ 95.7 $ 2.39 $ 2.36 $ 352.8 $ 342.1 $ 1,376.9 502.0 8.98 $ 8.83 $ 12.95 12.75 362.1 $ 30.9 $ 1,418.3 257.1 0.78 $ 0.77 $ 6.35 6.29 (1) Quarterly earnings per share may not be additive, as per share amounts are computed independently for each quarter and the full year is based on the respective weighted average common shares and common stock equivalents outstanding. (2) In the third quarter of 2016, net income included $30.3 million of income related to the settlement of a residual sharing agreement and a $3.9 million income tax benefit resulting from a reduction in the statutory income tax rate in the U.K. (3) In the fourth quarter of 2017, net income included a $315.9 million income tax benefit related to the impact of the enacted Tax Cuts and Jobs Act. In the fourth quarter of 2016, net income included $19.2 million of impairment losses related to certain railcars at Rail North America and a $7.1 million income tax benefit related to the utilization of foreign tax credits. 116 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Management’s Report Regarding the Effectiveness of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective. Management’s Report Regarding the Effectiveness of Internal Control and Procedures Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act for us. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate as a result of changes in conditions, or that the degree of compliance with the applicable policies and procedures may deteriorate. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of our internal control over financial reporting as of the end of the period covered by this annual report based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Such evaluation included reviewing the documentation of our internal controls, evaluating the design effectiveness of the internal controls and testing their operating effectiveness. Based on such evaluation, our management has concluded that as of the end of the period covered by this annual report, our internal control over financial reporting was effective. Ernst & Young LLP, the independent registered public accounting firm that audited the financial statements included in this annual report, has issued a report on our internal control over financial reporting. That report follows. 117 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting To the Shareholders and the Board of Directors of GATX Corporation Opinion on Internal Control over Financial Reporting We have audited GATX Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, GATX Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and our report dated February 21, 2018 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report Regarding the Effectiveness of Internal Control and Procedures. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Chicago, Illinois February 21, 2018 118 Changes in Internal Control Over Financial Reporting No change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the fiscal quarter ended December 31, 2017, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. Item 10. Directors, Executive Officers and Corporate Governance PART III Information required by this item regarding directors, our Code of Business Conduct and Ethics, Code of Ethics for Senior Company Officers, Audit Committee Financial Experts, compliance with Section 16(a) of the Exchange Act, and corporate governance is contained in sections entitled “Director Criteria and Nomination Process”, “Nominees for Election to the Board of Directors”, “Board of Directors”, “Board Independence”, “Board Leadership Structure”, “Board Committees”, “Director and Officer Indemnification and Insurance Arrangements”, “Communication with the Board”, “Audit Committee Report”, and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement to be filed on or about March 19, 2018, which sections are incorporated herein by reference. Information regarding executive officers is included after Item 1 in Part I of this Form 10-K. Item 11. Executive Compensation Information required by this item regarding compensation of our directors and executive officers is contained in sections entitled “Director Compensation”, “Compensation Discussion and Analysis”, “Compensation Committee Report”, and “Executive Compensation Tables”, in our definitive Proxy Statement to be filed on or about March 19, 2018, which sections are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item regarding security ownership of certain beneficial owners and management is contained in sections entitled “Security Ownership of Directors and Executive Officers” and “Principal Shareholders” in our definitive Proxy Statement to be filed on or about March 19, 2018, which sections are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence Information required by this item regarding transactions with related persons and director independence is contained in the sections entitled “Related Party Transactions” and “Board Independence” in our definitive Proxy Statement to be filed on or about March 19, 2018, which sections are incorporated herein by reference. Item 14. Principal Accounting Fees and Services Information required by this item regarding fees paid to Ernst & Young is contained in sections entitled “Pre-Approval Policy” and “Audit and Other Related Fees” in our definitive Proxy Statement to be filed on or about March 19, 2018, which sections are incorporated herein by reference. 119 PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements Documents Filed as Part of this Report: Page 64 Report of Independent Registered Public Accounting Firm with respect to the consolidated financial statements . . . . . . . . . 65 Consolidated Balance Sheets — December 31, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Consolidated Statements of Comprehensive Income — Years Ended December 31, 2017, 2016, and 2015 . . . . . . . . . . . . . . 67 Consolidated Statements of Cash Flows — Years Ended December 31, 2017, 2016, and 2015 . . . . . . . . . . . . . . . . . . . . . . . . 68 Consolidated Statements of Changes in Shareholders’ Equity — Years Ended December 31, 2017, 2016, and 2015 . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . 118 2. Financial Statement Schedules: Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and, therefore, have been omitted. 3. Exhibits. Exhibit Number Exhibit Description Filed with this Report: EXHIBIT INDEX 10.1 Employment Agreement dated as of October 27, 2017, between GATX Corporation and James F. Earl.* 12 Computation of ratios of earnings to combined fixed charges and preferred stock dividends. 21 Subsidiaries of the Registrant. 23 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. 24 Powers of Attorney with respect to the Annual Report on Form 10-K for the fiscal year ended December 31, 2017. 31.1 Certification Pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a) (CEO Certification). 31.2 Certification Pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a) (CFO Certification). 32 Certification Pursuant to 18 U.S.C. Section 1350 (CEO and CFO Certification). 101 The following materials from GATX Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, are formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2017 and December 31, 2016, (ii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016, and 2015, (iii) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015, and (iv) Notes to the Consolidated Financial Statements. Incorporated by Reference: 3.1 Restated Certificate of Incorporation of GATX Corporation is incorporated herein by reference to Exhibit 3.2 to GATX’s Form 8-K dated October 31, 2013, file number 1-2328. 3.2 Amended and Restated By-Laws of GATX Corporation are incorporated herein by reference to Exhibit 3.1 of GATX’s Form 8-K dated August 5, 2015, file number 1-2328. 120 4.1 4.2 Indenture dated as of November 1, 2003 between GATX Financial Corporation and JP Morgan Chase Bank is incorporated herein by reference to Exhibit 4Q to GATX Financial Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, file number 1-8319. Indenture dated as of February 6, 2008, between GATX Corporation and U.S. Bank National Association, as Trustee, is incorporated herein by reference to Exhibit 4.12 to GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, file number 1-2328. 10.1 Five Year Credit Agreement dated as of April 30, 2013, with Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint book managers, Bank of America, N.A., as syndication agent, PNC Bank, National Association, U.S. Bank, National Association, and Bayerische Landesbank, acting through its New York branch, as co-documentation agents, Citibank, N.A., as administrative agent, and the lenders party thereto is incorporated herein by reference to Exhibit 10.1 to GATX’s Form 8-K dated May 3, 2013, file number 1-2328. i. Amendment No. 1 to the Credit Agreement, dated as of July 8, 2014, among GATX Corporation, as borrower, Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint book managers, Bank of America, N.A., as syndication agent, PNC Bank, N.A., U.S. Bank, National Association and Bayerische Landesbank, acting through its New York branch, as co-documentation agents, Citibank, N.A., as administrative agent, and the lenders party thereto is incorporated by reference to Exhibit 10.1 to GATX’s Current Report on Form 8-K dated July 11, 2014, file number 1-2328. ii. Amendment No. 2 to the Credit Agreement, dated as of May 20, 2015, among GATX Corporation, as borrower, Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint book managers, Bank of America, N.A., as syndication agent, PNC Bank, N.A., U.S. Bank, National Association and Bayerische Landesbank, acting through its New York branch, as co-documentation agents, Citibank, N.A., as administrative agent, and the lenders party thereto is incorporated by reference to Exhibit 10.1 to GATX’s Current Report on Form 10-Q dated June 30, 2015, file number 1-2328. 10.2 Five Year Credit Agreement dated as of May 26, 2016, among Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint book managers, Bank of America, N.A., as syndication agent, PNC Bank, N.A., U.S. Bank, National Association, and Bayerische Landesbank, acting through its New York branch, as co-documentation agents, Citibank, N.A., as administrative agent, and the lenders party thereto is incorporated herein by reference to Exhibit 10.1 to GATX’s Form 8-K dated June 2, 2016, file number 1-2328. 10.3 Supply Agreement by and between GATX Corporation, as Buyer, and Trinity Rail Group, LLC, as Seller, dated March 14, 2011 is incorporated by reference to Exhibit 10.1.A to GATX’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011, file number 1-2328 (Note: Portions of this document have been omitted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission on April 27, 2011). i. First Amendment to Supply Agreement by and between GATX Corporation, as Buyer, and Trinity Rail Group, LLC, as Seller, dated April 25, 2011 is incorporated by reference to GATX’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011, file number 1-2328. 10.4 Supply Agreement by and between GATX Corporation, as Buyer, and Trinity Rail Group, LLC, as Seller, dated November 3, 2014 is incorporated by reference to Exhibit 10.25 to GATX’s Form 10-K for the fiscal year ended December 31, 2014, file number 1-2328 (Note: Portions of this document have been omitted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission on February 5, 2015). 10.5 Summary of GATX Corporation Non-Employee Directors’ Compensation is incorporated herein by reference to the section entitled “Director Compensation” in GATX’s Definitive Proxy Statement filed on March 24, 2017, in connection with GATX’s 2017 Annual Meeting of Shareholders, file number 1-2328.* 10.6 GATX Corporation 2004 Equity Incentive Compensation Plan is incorporated herein by reference to Exhibit C to the Definitive Proxy Statement filed on March 18, 2004 in connection with GATX’s 2004 Annual Meeting of Shareholders, file number 1-2328.* i. Amendment of said Plan, effective as of December 7, 2007, is incorporated herein by reference to Exhibit 10.28 to GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, file number 1-2328.* ii. Second Amendment of GATX Corporation 2004 Equity Incentive Compensation Plan effective October 22, 2010.* 10.7 Form of GATX Corporation Stock-Settled Stock Appreciation Right (SAR) Agreement for grants under the 2004 Equity Incentive Compensation Plan to executive officers on or after January 1, 2009, incorporated herein by reference to Exhibit 10.2 to GATX’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009, file number 1-2328.* 10.8 GATX Corporation 2012 Incentive Award Plan is incorporated herein by reference to Exhibit A to the Definitive Proxy Statement filed on March 16, 2012 in connection with GATX’s 2012 Annual Meeting of Shareholders, file number 1-2328.* i. Amendment and Restatement of said Plan, effective May 5, 2017, is incorporated herein by reference to Exhibit C to the Definitive Proxy Statement filed on March 24, 2017 in connection with GATX’s 2017 Annual Meeting of Shareholders, file number 1-2328.* 121 10.9 GATX Corporation Cash Incentive Compensation Plan is incorporated herein by reference to Exhibit D to the Definitive Proxy Statement filed on March 18, 2004 in connection with GATX’s 2004 Annual Meeting of Shareholders, file number 1-2328.* i. Amendment of said Plan, effective as of December 7, 2007, is incorporated herein by reference to Exhibit 10.30 to GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, file number 1-2328.* 10.10 Form of Amended and Restated Agreement for Employment Following a Change of Control dated as of January 1, 2009, between GATX Corporation and Brian A. Kenney is incorporated herein by reference to Exhibit 10.27 to GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, file number 1-2328.* 10.11 Form of Amended and Restated Agreement for Employment Following a Change of Control dated as of January 1, 2009, between GATX Corporation and Robert C. Lyons, James F. Earl, Deborah A. Golden, William M. Muckian, and Michael T. Brooks is incorporated herein by reference to Exhibit 10.28 to GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, file number 1-2328.* 10.12 Form of Agreement for Employment Following a Change of Control between GATX Corporation and James M. Conniff (dated as of February 1, 2015) and Thomas A. Ellman (dated as of January 1, 2014) is incorporated herein by reference to Exhibit 10.1 to GATX’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, file number 1-2328.* 10.13 Form of Agreement for Employment following a Change of Control between GATX Corporation and Niyi Adedoyin (dated as of January 29, 2016), Eric D. Harkness (dated as of February 1, 2015), Jeffrey D. Young (dated as of February 1, 2015), and Paul F. Titterton (dated as of January 1, 2014) is incorporated by reference to Exhibit 10.2 to GATX’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, file number 1-2328.* 10.14 Form of GATX Corporation Indemnification Agreement for directors as of February 23, 2009, is incorporated herein by reference to Exhibit 10.1 to GATX’s Form 8-K dated February 24, 2009, file number 1-2328. 10.15 Form of Stock-Settled Stock Appreciation Right (SAR) Agreement for awards under the GATX Corporation 2012 Incentive Award Plan to executive officers with Agreements for Employment Following a Change of Control is incorporated by reference to Exhibit 10.24 of GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, file number 1-2328.* 10.16 Form of Performance Share Agreement for grants under the GATX Corporation 2012 Incentive Award Plan to executive officers with Agreements for Employment Following a Change of Control is incorporated by reference to Exhibit 10.25 of GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, file number 1-2328.* 10.17 Form of Performance Share Agreement with cash-election option for grants under the GATX Corporation 2012 Incentive Award Plan to executive officers with Agreements for Employment Following a Change of Control is incorporated by reference to Exhibit 10.1 to GATX’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, file number 1-2328.* 10.18 Form of Option Agreement for awards under the GATX Corporation 2012 Incentive Award Plan to execute officers with Agreements for Employment Following a Change of Control, is incorporated by reference to Exhibit 10.1 to GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, file number 1-2328.* 10.19 Amended and Restated GATX Corporation Directors’ Voluntary Deferred Fee Plan, effective as of December 2, 2016, is incorporated by reference to Exhibit 10.2 to GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, file number 1-2328.* 10.20 Amended and Restated GATX Corporation Directors’ Phantom Stock Plan, effective as of December 2, 2016, is incorporated by reference to Exhibit 10.3 to GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, file number 1-2328.* 99.1 Undertakings to the GATX Corporation Salaried Employees’ Retirement Savings Plan is incorporated herein by reference to GATX’s Annual Report on Form 10-K for the fiscal year ended December 31, 1982, file number 1-2328.* (Paper copy). 99.2 Certain instruments evidencing long-term indebtedness of GATX Corporation are not being filed as exhibits to this Report because the total amount of securities authorized under any such instrument does not exceed 10% of GATX Corporation’s total assets. GATX Corporation will furnish copies of any such instruments upon request of the Securities and Exchange Commission. (*) Compensatory Plans or Arrangements Item 16. Form 10-K Summary N/A. 122 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES GATX CORPORATION Registrant /s/ BRIAN A. KENNEY Brian A. Kenney Chairman, President and Chief Executive Officer February 21, 2018 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ BRIAN A. KENNEY Brian A. Kenney February 21, 2018 /s/ ROBERT C. LYONS Robert C. Lyons February 21, 2018 /s/ WILLIAM M. MUCKIAN William M. Muckian February 21, 2018 Diane Aigotti Anne L. Arvia Ernst A. Häberli James B. Ream Robert J. Ritchie David S. Sutherland Casey J. Sylla Stephen R. Wilson Paul G. Yovovich /s/ DEBORAH A. GOLDEN Deborah A. Golden February 21, 2018 Chairman, President and Chief Executive Officer (Principal Executive Officer) Executive Vice President and Chief Financial Officer (Principal Financial Officer) Senior Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) Director Director Director Director Director Director Director Director Director Executive Vice President, General Counsel and Corporate Secretary (Attorney in Fact) 123 GATX CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (In millions, except ratios) 2017 Year Ended December 31 2015 2014 2016 Exhibit 12 2013 Earnings available for fixed charges: Income before income taxes and share of affiliates’ earnings . . . . . . . . . Add: Dividends from affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . Total fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 214.4 $ 305.4 $ 270.3 $ 231.2 $ 159.0 30.2 188.7 35.2 178.7 32.2 191.5 40.0 206.6 34.4 224.1 Total earnings available for fixed charges . . . . . . . . . . . . . . . . . . . . . . . . $ 433.3 $ 519.3 $ 494.0 $ 477.8 $ 417.5 Fixed charges: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest portion of operating lease expense . . . . . . . . . . . . . . . . . . . . . . Preferred dividends on pre-tax basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 163.6 25.1 — $ 150.0 28.7 — $ 156.2 35.3 — $ 159.3 47.3 — $ 167.8 56.0 0.3 Total fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188.7 $ 178.7 $ 191.5 $ 206.6 $ 224.1 Ratio of earnings to fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.30 2.91 2.58 2.31 1.86 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 The following is a list of subsidiaries included in our consolidated financial statements and the state or country of incorporation of each: Company Name GATX Terminals Overseas Holding Corporation (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Global Finance B.V. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Global Holding GmbH (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Rail Austria GmbH (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Beteiligungs GmbH (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Rail Germany GmbH (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Rail Poland Sp. z o.o. (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX International Limited (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Canada Holdings, Inc. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Rail Canada Corporation (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General American Transportation Holding Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grupo GATX de Mexico, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX de Mexico, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Third Aircraft LLC (1)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . American Steamship Company (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Asia Investments Private Limited (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Rail Locomotive Group, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATX Rail Funding II, LLC (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State or Country of Incorporation Delaware Netherlands Switzerland Austria Germany Germany Poland United Kingdom Canada Canada Delaware Delaware Delaware Delaware New York Singapore Delaware Delaware (1) Company is a significant subsidiary as defined in Rule 1-02(w) of Regulation S-X. (2) Company includes one foreign subsidiary. (3) Company includes two domestic subsidiaries and six foreign subsidiaries. (4) Company includes 14 domestic subsidiaries. (5) Company includes seven foreign subsidiaries. Certain subsidiaries which, if considered as a single subsidiary, would not constitute a “significant subsidiary” as defined in Regulation S-X, have been omitted. Consent of Independent Registered Public Accounting Firm Exhibit 23 We consent to the incorporation by reference in the following Registration Statements: 1. Registration Statement (Form S-3 No. 333-213160) and related prospectus of GATX Corporation, 2. Registration Statement (Form S-8 No. 333-219346) pertaining to the Amended and Restated 2012 Incentive Award Plan, 3. Registration Statement (Form S-8 No. 333-182219) pertaining to the 2012 Incentive Award Plan, 4. Registration Statement (Form S-8 No. 333-116626) pertaining to the 2004 Equity Incentive Compensation Plan, the 1995 Long-Term Incentive Compensation Plan, and the 1985 Long-Term Incentive Compensation Plan, 5. Registration Statement (Form S-8 No. 333-145581) pertaining to the Salaried Employees Retirement Savings Plan, 6. Registration Statement (Form S-8 No. 33-41007) pertaining to the Salaried Employees Retirement Savings Plan, 7. Registration Statement (Form S-8 No. 2-92404) pertaining to the Salaried Employees Savings Plan, and 8. Registration Statement (Form S-8 No. 333-145583) pertaining to the Hourly Employees Retirement Savings Plan of GATX Corporation; of our reports dated February 21, 2018, with respect to the consolidated financial statements of GATX Corporation and the effectiveness of internal control over financial reporting of GATX Corporation included in this Annual Report (Form 10-K) of GATX Corporation for the year ended December 31, 2017. Chicago, Illinois February 21, 2018 Exhibit 31.1 Certification of Principal Executive Officer I, Brian A. Kenney, certify that: 1. I have reviewed this Annual Report on Form 10-K of GATX Corporation (the “Company”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting the Company’s ability to record, process, summarize and report financial which are reasonably likely to adversely affect information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. February 21, 2018 /s/ BRIAN A. KENNEY Brian A. Kenney Chairman, President and Chief Executive Officer Exhibit 31.2 Certification of Principal Financial Officer I, Robert C. Lyons, certify that: 1. I have reviewed this Annual Report on Form 10-K of GATX Corporation (the “Company”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting the Company’s ability to record, process, summarize and report financial which are reasonably likely to adversely affect information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. February 21, 2018 /s/ ROBERT C. LYONS Robert C. Lyons Executive Vice President and Chief Financial Officer GATX CORPORATION AND SUBSIDIARIES CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32 In connection with this Annual Report of GATX Corporation (the “Company”) on Form 10-K for the period ending December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ BRIAN A. KENNEY Brian A. Kenney /s/ ROBERT C. LYONS Robert C. Lyons Chairman, President and Chief Executive Officer Executive Vice President and Chief Financial Officer February 21, 2018 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by GATX Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to GATX Corporation and will be retained by GATX Corporation and furnished to the Securities and Exchange Commission or its staff upon request. [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] Board of Directors Executive Ofﬁcers Diane M. Aigotti (1,3) Executive Vice President, Managing Director & Chief Financial Ofﬁcer, Ryan Specialty Group LLC Anne L. Arvia (1,3) Former Acting President, Senior Vice President and Managing Director, USAA Bank Ernst A. Häberli (2,3) Retired; Former President, Commercial Operations International, The Gillette Company James B. Ream (A) Former Senior Vice President – Operations, American Airlines Robert J. Ritchie (1,3) Retired; Former Chief Executive Ofﬁcer, Canadian Paciﬁc Railway Company David S. Sutherland (2,3) Retired; Former President and Chief Executive Ofﬁcer, IPSCO, Inc. Casey J. Sylla (1,2) Retired; Former Chairman and Chief Executive Ofﬁcer, Allstate Life Insurance Company Stephen R. Wilson (1,2) Retired; Former Chairman, President and Chief Executive Ofﬁcer, CF Industries Holdings, Inc. Paul G. Yovovich (2,3) President, Lake Capital Brian A. Kenney Chairman, President and Chief Executive Ofﬁcer, GATX Corporation Brian A. Kenney Chairman, President and Chief Executive Ofﬁcer Robert C. Lyons Executive Vice President and Chief Financial Ofﬁcer James F. Earl (1) Executive Vice President and President, Rail International Thomas A. Ellman Executive Vice President and President, Rail North America Deborah A. Golden Executive Vice President, General Counsel and Corporate Secretary Niyi A. Adedoyin Senior Vice President and Chief Information Ofﬁcer Michael T. Brooks Senior Vice President and Chief Operations Ofﬁcer, Rail North America James M. Conniff Senior Vice President, Human Resources William M. Muckian Senior Vice President, Controller and Chief Accounting Ofﬁcer N. Gokce Tezel (2) Senior Vice President and President, Rail International Paul F. Titterton Senior Vice President and Chief Commercial Ofﬁcer, Rail North America Eric D. Harkness Vice President, Treasurer and Chief Risk Ofﬁcer Jeffery R. Young Vice President and Chief Tax Ofﬁcer (A) Lead Director (1) Member, Audit Committee (2) Member, Compensation Committee (3) Member, Governance Committee (1) Mr. Earl will retire on March 1, 2018. (2) Mr. Tezel’s role as Senior Vice President and President, Rail International will become effective March 1, 2018, contemporaneously with Mr. Earl’s retirement. For more information about GATX’s Corporate Governance, go to www.gatx.com > Investor Relations > Corporate Governance 2017 REVIEW FINANCIAL HIGHLIGHTS (In millions, except per share data) Net Income Per Diluted Share Net Income EXCLUDING TAX ADJUSTMENTS AND OTHER ITEMS (a) Net Income Per Diluted Share Net Income 2015 2016 2017 $ 205.3 $ 4.69 $ 234.9 $ 5.37 $ 257.1 $ 6.29 $ 235.9 $ 5.77 $ 502.0 $ 12.75 $ 185.0 $ 4.70 (a) The following items for each year noted are referred to as “Tax Adjustments and Other Items:” – Results for 2017 included the impact of the Tax Cuts and Jobs Act enacted in 2017, and losses and gains associated with sales of certain investments. – Results for 2016 included certain tax benefits, residual sharing gains, and losses and gains associated with impairments and sales of certain investments. – Results for 2015 included certain tax expenses and benefits, losses and gains associated with impairments and sales of certain investments, and expenses associated with the roll-out of an early retirement program for certain eligible employees. CASH RETURNED TO SHAREHOLDERS ($ millions) $1.6 Billion + RETURNED TO SHAREHOLDERS (2007 – 2017) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 200 400 600 800 1,000 1,200 1,400 1,600 Cumulative Dividends Cumulative Share Repurchase GATX Corporation (NYSE: GATX) 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. 2018 marks GATX’s 120th year of providing customers with quality railcars and services in markets around the world. ANNUAL MEETING Monday, April 30, 2018, 12:00 p.m. Central Time Northern Trust Company Assembly Room, Sixth Floor 50 South LaSalle Street, Chicago, IL 60603 GATX Corporation welcomes and encourages questions and comments from its shareholders, potential investors, financial professionals, and the public at large. To better serve interested parties, the following GATX personnel may be contacted by email, telephone, letter, or fax: SHAREHOLDER INQUIRIES Inquiries regarding dividend checks, the dividend reinvestment plan, stock certificates, replacement of lost certificates, address changes, account consolidation, transfer procedures, and year-end tax information should be addressed to GATX Corporation’s transfer agent and registrar: Computershare P.O. Box 505000, Louisville, KY 40233 Toll Free Number: (866) 767-6259 TDD for Hearing Impaired: (800) 231-5469 Outside the U.S.: (201) 680-6578 TDD Outside the U.S.: (201) 680-6610 www.computershare.com/investor INFORMATION RELATED TO SHAREHOLDER OWNERSHIP, DIVIDEND PAYMENTS, OR SHARE TRANSFERS Lisa M. Ibarra, Assistant Secretary Telephone: (312) 621-6603 Fax: (312) 621-6647 Email: lisa.ibarra@gatx.com TO REQUEST PUBLISHED FINANCIAL INFORMATION AND FINANCIAL REPORTS GATX Corporation Investor Relations Department 222 West Adams Street, Chicago, IL 60606-5314 Telephone: (800) 428-8161 Fax: (312) 621-6648 Email: ir@gatx.com REQUEST LINE FOR MATERIALS (312) 621-6300 ANALYST, INSTITUTIONAL SHAREHOLDER, AND FINANCIAL COMMUNITY INQUIRIES Jennifer McManus, Director, Investor Relations Telephone: (312) 621-6409 Fax: (312) 621-6648 Email: jennifer.mcmanus@gatx.com INDIVIDUAL INVESTOR INQUIRIES Irma Dominguez, Investor Relations Coordinator Telephone: (312) 621-8799 Fax: (312) 621-6648 Email: irma.dominguez@gatx.com FINANCIAL INFORMATION AND PRESS RELEASES A copy of the Company’s Annual Report on Form 10-K for 2017 and selected other information are available without charge. Corporate information and press releases can be found at GATX’s website, www.gatx.com. Requests for information can be made through the site, and many GATX publications can be directly viewed or downloaded. A variety of current and historical financial information also is available at this site. QUESTIONS REGARDING SALES, SERVICE, LEASE INFORMATION, OR CUSTOMER SOLUTIONS Rail North America/Rail International: (312) 621-6200 American Steamship Company: (716) 635-0222 Portfolio Management: (312) 621-6200 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Statements in this Annual 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,” “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 in our other filings with the SEC, including our Form 10-K for the year ended December 31, 2017, and subsequent reports on Form 10-Q, 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 > inability to maintain our assets on lease at satisfactory rates due to over- supply of railcars in the market or other changes in supply and demand > a significant decline in customer demand for our railcars or other 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 supply chains — availability of pipelines, trucks, and other alternative modes of transportation — other operational or commercial needs or decisions of our customers > higher costs associated with increased railcar assignments 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 > reduced opportunities to generate asset remarketing income > operational and financial risks related to our affiliate investments, including the Rolls-Royce & Partners Finance joint ventures (collectively the “RRPF affiliates”) > the impact of changes to the Internal Revenue Code as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), and uncertainty as to how this legislation will be interpreted and applied > 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 > competitive factors in our primary markets, including competitors with a significantly lower cost of capital than GATX > risks related to international operations and expansion into new geographic markets > changes in, or failure to comply with, laws, rules, and regulations > inability to obtain cost-effective insurance > environmental remediation costs > inadequate allowances to cover credit losses in our portfolio > inability to maintain and secure our information technology infrastructure from cybersecurity threats and related disruption of our business 2017 | AR G A T X C o r p o r a t i o n / / 2 0 1 7 A n n u a l R e p o r t GATX CORPORATION 222 West Adams Street, Chicago, IL 60606-5314 (312) 621-6200 // (800) 428-8161 www.gatx.com

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