GATX CORP (GATX) FY 2021 MD&A

OVERVIEW

We lease, operate, manage, and remarket long-lived, widely used assets, primarily in the rail market. We report our financial results through three primary business segments: Rail North America, Rail International, and Portfolio Management. Historically, we also reported financial results for American Steamship Company ("ASC") as a fourth segment.

In the first quarter of 2021, GATX began investing directly in aircraft spare engines through its new entity, GATX Engine Leasing Ltd. ("GEL"). In 2021, GEL acquired 14 aircraft spare engines for approximately $352 million, including 4 engines for $120 million from Rolls-Royce & Partners Finance joint ventures (collectively the "RRPF affiliates" or "RRPF"). Financial results for this business are reported in the Portfolio Management segment.

On December 29, 2020, we acquired Trifleet Leasing Holding B.V. ("Trifleet"), one of the largest tank container lessors in the world. Financial results for this business are reported in the Other segment. See "Note 4. Business Combinations" in Part II, Item 8 of this Form 10-K for additional information. A more complete description of our business is included in “Item 1. Business," in Part I of this Form 10-K.

On May 14, 2020, we completed the sale of our ASC business. As a result, ASC is now reported as discontinued operations, and financial data for the ASC segment has been segregated and presented as discontinued operations for all periods presented. See "Note 25. Discontinued Operations" Part II, Item 8 of this Form 10-K for additional information. Unless otherwise indicated, the following information relates to continuing operations.

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

Coronavirus Disease 2019 ("COVID-19")

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic and on March 13, 2020, the United States declared a national emergency related to COVID-19. Across our operating segments, we have implemented business continuity and crisis management plans. The COVID-19 pandemic continues to evolve as new variants emerge, including the scope and duration of disruptions and the pace and timing of the eventual recovery. Our top priorities continue to be ensuring the health and safety of our global workforce and serving our various stakeholders with minimal disruptions.

Rail North America

The initial impact of COVID-19 resulted in a decline in industry railcar loadings, had a negative impact on lease rates, and led to a reduction in the purchase and sale of railcars in the secondary market. Although market conditions and absolute lease rates improved throughout 2021, the effects of COVID-19 will likely continue to disrupt global manufacturing, supply chains, and consumer spending, and the risk of ongoing volatility as a result of future COVID-19 disruptions persists.

Rail International

COVID-19 had a minimal impact on our operations in Europe, but it has continued to cause disruptions to railcar manufacturers in Europe and India, and the risk of ongoing volatility as a result of future COVID-19 disruptions persists.

Rail North America & Rail International Maintenance Operations

Rail freight transportation and railcar repair have been deemed essential businesses globally. Our rail operations teams have implemented COVID-19 preparation and response programs to ensure the health and safety of our employees while continuing to provide critical railcar maintenance services. As a result of the resurgence in cases from the COVID-19 variants, disruptions at our railcar repair facilities increased during the later part of 2021, and future disruptions from additional variants could occur.

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Rolls-Royce & Partners Finance Joint Ventures ("RRPF affiliates") and GEL

Global air travel continues to be significantly impacted by COVID-19. In response to the drastic decline in demand, airlines have reduced system-wide capacity and grounded large portions or all of their fleets. Although some flight operations have resumed, air travel remains significantly below pre-COVID-19 levels. Many airlines are currently focused on managing their near-term liquidity positions, restructuring operations, and obtaining government financial support. The major reduction in global air travel and the disruption across the aviation industry did impact the profitability of our aircraft spare engine leasing business and operating results in 2021, and we expect that it will continue to have a negative impact on our near-term future operating results, the magnitude and duration of which are still uncertain.

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DISCUSSION OF OPERATING RESULTS

The following table shows a summary of our reporting segments and consolidated financial results relating to continuing operations and discontinued operations for years ended December 31 (dollars in millions, except per share data):

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_________

(1)     See "Non-GAAP Financial Measures" at the end of this item for further details.

2021 Summary

Net income from continuing operations was $143.1 million, or $3.98 per diluted share, for 2021 compared to $150.2 million, or $4.24 per diluted share, for 2020, and $180.8 million, or $4.97 per diluted share, for 2019. Results for 2021 included a net negative impact of $39.1 million ($1.08 per diluted share) from tax adjustments and other items, compared to a net negative impact of $12.3 million ($0.35 per diluted share) from tax adjustments and other items in 2020 and a net benefit of $2.8 million ($0.08 per diluted share) in 2019 (see "Non-GAAP Financial Measures" at the end of this item for further details).

•At Rail North America, segment profit in 2021 was higher than prior year. The increase was attributable to higher net gains on asset dispositions and lower maintenance expense, partially offset by lower revenue.

•At Rail International, segment profit in 2021 was higher than prior year, due to higher revenue from more railcars on lease and the positive variance of foreign exchange rates, partially offset by higher maintenance expense.

•At Portfolio Management, segment profit in 2021 decreased compared to prior year, primarily due to lower share of affiliates' earnings from the RRPF affiliates, partially offset by results from our new operations at GEL and higher residual sharing gains on managed portfolio sales in the current year.

•Within Other, segment profit is attributable to Trifleet operations. Trifleet was acquired by GATX on December 29, 2020.

Total investment volume was $1,131.9 in 2021, compared to $1,064.0 million in 2020, and $722.8 million in 2019.

2022 Outlook

Conditions in the Rail North American leasing market gradually improved throughout 2021, and we expect this to continue in 2022. We expect continued favorable market conditions in our Rail International and Trifleet businesses. The operating environment at RRPF is expected to continue to be challenging due to the ongoing adverse impact of COVID-19 on global air travel. We have a strong balance sheet and access to capital which we believe positions us well to manage our transportation assets based on current market conditions. However, the risk of ongoing volatility as a result of future COVID-19 disruptions persists.

•We expect Rail North America's segment profit in 2022 to increase from 2021. Lease rates for railcars scheduled to renew in 2022 will likely be generally higher than expiring rates, due to the gradual market recovery we have recently experienced. We also anticipate high renewal success and slightly lower utilization, which will result in slightly higher revenue in 2022 compared to the prior year. Maintenance expense is expected to be similar to 2021. Finally, we expect remarketing income to be higher in 2022 as we continue to optimize our fleet.

•Rail International's segment profit in 2022 is expected to increase from 2021 as the demand for railcars in Europe continues to be strong and we continue to invest in the fleet. Lease revenue is expected to be higher in 2022, resulting from more railcars on lease and higher lease rates. In India, absent any potential COVID-19 disruptions, we anticipate significant growth in our fleet, which will also contribute to an increase in segment profit.

•We anticipate Portfolio Management's segment profit in 2022 to be lower than 2021. RRPF results are expected to decline as the reduction in long-haul global air travel will likely continue to impact financial and operating results. We will focus on finding attractive investment opportunities, such as our direct engine investments at GEL, as we continue to grow the business.

•Trifleet's segment profit in 2022 is expected to increase from 2021. The tank container leasing market is expected to remain strong, and we anticipate additional investment in the fleet, which will also contribute to higher segment profit in 2022.

Segment Operations

Segment profit is an internal performance measure used by the Chief Executive Officer to assess the profitability of each segment. Segment profit includes all revenues, expenses, pre-tax earnings from affiliates, and net gains on asset dispositions that are directly attributable to each segment. We allocate interest expense to the segments based on what we believe to be the appropriate risk-adjusted borrowing costs for each segment. Segment profit excludes selling, general and administrative expenses, income taxes, and certain other amounts not allocated to the segments.

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RAIL NORTH AMERICA

Segment Summary

The operating environment for Rail North America generally improved throughout 2021. Demand for many car types strengthened during the year, although pockets of weakness persisted in certain car types, and Rail North America experienced sequential increases in absolute lease rates throughout the year. Utilization remained strong at 99.2% at the end of the year.

During 2021, Rail North America recorded a $5.3 million net gain resulting from an insurance recovery for storm damage to a maintenance facility.

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

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

Rail North America Fleet Data

At December 31, 2021, Rail North America's wholly owned fleet, excluding boxcars, consisted of approximately 101,600 railcars. Fleet utilization, excluding boxcars, was 99.2% at the end of 2021, compared to 98.1% at the end of 2020, and 99.3% at the end of 2019. Fleet utilization for approximately 12,900 boxcars was 99.7% at the end of 2021 compared to 95.8% at the end of 2020, and 95.0% at the end of 2018. Utilization is calculated as the number of railcars on lease as a percentage of total railcars in the fleet.

During 2021, an average of approximately 100,800 railcars, excluding boxcars, were on lease, compared to 101,700 in 2020, and 103,500 in 2019. Changes in railcars on lease compared to prior periods are impacted by the utilization of new railcars purchased

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under our supply agreements or in the secondary market and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.

As of December 31, 2021, leases for approximately 18,500 tank and freight cars and approximately 2,000 boxcars are scheduled to expire in 2022. These amounts exclude railcars on leases expiring in 2022 that have already been renewed or assigned to a new lessee.

In 2018, we amended a long-term supply agreement with Trinity Rail Group, LLC ("Trinity"), a subsidiary of Trinity Industries to extend the term to December 2023, and we agreed to purchase 4,800 tank cars (1,200 per year) beginning in January 2020 and continuing through 2023. At December 31, 2021, 3,036 railcars have been ordered pursuant to the amended terms of the agreement, of which 2,280 railcars have been delivered.

In 2018, we entered into a multi-year railcar supply agreement with American Railcar Industries, Inc. ("ARI"), pursuant to which we agreed to purchase 7,650 newly built railcars. The order encompasses a mix of tank and freight cars to be delivered over a five-year period, beginning in April 2019 and ending in December 2023. ARI's railcar manufacturing business was acquired by a subsidiary of The Greenbrier Companies, Inc. ("Greenbrier") on July 26, 2019, and such subsidiary assumed all of ARI's obligations under our long-term supply agreement. As of December 31, 2021, 6,141 railcars have been ordered, of which 3,838 railcars have been delivered. The agreement included an option to order additional railcars subject to certain restrictions and, as of December 31, 2021, we still have the option to order 2,200 additional railcars during the remaining term of the agreement.

The following table shows fleet activity for Rail North America railcars, excluding boxcars, for the years ended December 31:

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The following table shows fleet statistics for Rail North America boxcars for the years ended December 31:

The following table shows fleet activity for Rail North America locomotives for the years ended December 31:

Lease Price Index

Our lease price index ("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.

During 2021, the renewal rate change of the LPI was negative 8.5%, compared to negative 23.5% in 2020 and negative 3.9% in 2019. Lease terms on renewals for cars in the LPI averaged 32 months in 2021, compared to 31 months in 2020, and 39 months in 2019. Additionally, the renewal success rate, which represents the percentage of railcars on expiring leases that were renewed with the existing lessee, was 82.7% in 2021, compared to 70.8% in 2020, and 82.2% in 2019. The renewal success rate is an important metric

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because railcars returned by our customers may remain idle or incur additional maintenance and freight costs prior to being leased to new customers.

Comparison of Reported Results

Segment Profit

In 2021, segment profit of $285.4 million increased 25.4% compared to $227.6 million in 2020. Segment profit in 2021 includes a net gain of $5.3 million attributable to net insurance recoveries for storm damage to a maintenance facility. Excluding this gain, results for Rail North America were $52.5 million higher than 2020, resulting from higher net gains on asset dispositions and lower maintenance expense, partially offset by lower revenue. The amount and timing of disposition gains is dependent on a number of factors and will vary from year to year.

In 2020, segment profit of $227.6 million decreased 17.6% compared to $276.2 million in 2019. The decrease was primarily driven by lower lease revenue and lower net gains on asset dispositions in the current year, partially offset by lower maintenance expense. The amount and timing of disposition gains is dependent on a number of factors and will vary from year to year.

Revenues

In 2021, lease revenue decreased $23.8 million, or 2.8%, a result of fewer railcars and locomotives on lease and the impact from lower lease rates we have recently experienced. Other revenue decreased $18.6 million, due to lower repair revenue, as a result of the mix of repairs.

In 2020, lease revenue decreased $30.0 million, or 3.5%, a result of fewer railcars and locomotives on lease, lower lease rates, and lower boxcar revenue. Other revenue decreased $0.4 million, due to lower lease termination fees, offset by higher repair revenue.

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Expenses

In 2021, maintenance expense decreased $29.3 million. The decrease resulted primarily from fewer regulatory compliance events, fewer repairs performed by the railroads, and a higher share of repairs being performed by GATX's owned shops versus contract shops. Depreciation expense increased $2.5 million due to the timing of new railcar investments and dispositions. Operating lease expense decreased $10.1 million, resulting from the purchase of railcars previously on operating leases. Other operating expense increased $3.0 million, due to higher insurance expense and higher switching, storage, and freight costs.

In 2020, maintenance expense decreased $3.2 million. The decrease resulted primarily from fewer repairs performed by the railroads and lower volumes of repairs on boxcars at third-party shops. Depreciation expense increased $1.7 million due to the timing of new railcar investments and dispositions. Operating lease expense decreased $5.1 million, resulting from the purchase of railcars previously on operating leases. Other operating expense increased $3.4 million, due to higher switching, freight, and storage costs.

Other Income (Expense)

In 2021, net gain on asset dispositions increased $56.0 million, due to higher asset remarketing gains, higher net scrapping gains, and a net gain on insurance recoveries as noted above. The amount and timing of disposition gains is dependent on a number of factors and will vary from year to year. Higher net scrapping gains were primarily a result of a higher scrap price per ton in 2021. Net interest expense decreased $3.7 million, primarily driven by a lower average interest rate, partially offset by a higher average debt balance.

In 2020, net gain on asset dispositions decreased $16.3 million, due to fewer railcars sold, partially offset by lower net scrapping losses. The amount and timing of disposition gains is dependent on a number of factors and will vary from year to year. Net interest expense increased $5.4 million, primarily driven by a higher average debt balance and a higher average interest rate.

Investment Volume

During 2021, investment volume was $574.4 million compared to $642.0 million in 2020, and $502.2 million in 2019. We acquired 3,947 railcars in 2021, compared to 5,103 railcars in 2020, and 3,225 railcars in 2019.

Our investment volume is predominantly composed of acquired railcars, but also includes certain capitalized repairs and improvements to owned railcars and our maintenance facilities. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of railcars purchased, which may include tank cars and freight cars, as well as newly manufactured railcars or those purchased in the secondary market.

RAIL INTERNATIONAL

Segment Summary

Rail International, composed primarily of GATX Rail Europe ("GRE"), produced significantly higher operating results in 2021. Demand for railcars in Europe remained strong, and renewal lease rates for most car types continued to increase modestly. GRE continued to grow and diversify its fleet during the year. However, the pace of fleet growth in 2021 was negatively impacted by new car delivery delays.

Our rail operations in India ("GRI") continued to focus on investment opportunities, diversification of its fleet, and developing relationships with customers, suppliers and the Indian Railways. The pace of fleet growth in 2021 was negatively impacted by railcar manufacturing and supply disruptions as a result of COVID-19.

During 2021, our rail operations in Russia ("Rail Russia") focused on managing its existing fleet, which consisted of 380 railcars, and maintaining strong relationships with its customer base.

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

GRE Fleet Data

At December 31, 2021, GRE's wholly owned fleet consisted of approximately 27,100 railcars. Fleet utilization was 98.7% at the end of 2021, compared to 98.1% at the end of 2020 and 99.3% at the end of 2019. Utilization is calculated as the number of railcars on lease as a percentage of total railcars in the fleet.

During 2021, an average of approximately 26,200 railcars were on lease, compared to 25,200 in 2020 and 23,700 in 2019. Changes in railcars on lease compared to prior periods are impacted by the number of new railcars purchased or acquired in the secondary market and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.

The following table shows fleet activity for GRE railcars for the years ended December 31:

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GRI Fleet Data

The following table shows fleet activity for GRI railcars for the years ended December 31:

Comparison of Reported Results

Foreign Currency

Rail International's reported results of operations are impacted by fluctuations in the exchange rates of the U.S. dollar versus the foreign currencies in which it conducts business, primarily the euro. In 2021, fluctuations in the value of the euro, relative to the U.S. dollar, positively impacted lease revenue by approximately $7.6 million and segment profit, excluding other income (expense), by approximately $4.5 million compared to 2020. In 2020, fluctuations in the value of the euro, relative to the U.S. dollar, positively impacted lease revenue by approximately $4.1 million and segment profit, excluding other income (expense), by approximately $3.4 million compared to 2019.

Segment Profit

In 2021, segment profit of $105.0 million increased 25.7% compared to $83.5 million in 2020. The increase was primarily due to higher revenue from more railcars on lease, as well as the positive variance of foreign exchange rates.

In 2020, segment profit of $83.5 million increased 5.8% compared to $78.9 million in 2019. The increase was primarily due to higher revenue from more railcars on lease, partially offset by higher maintenance expense and depreciation expense, as well as the negative impact of changes in foreign exchange rates on non-functional currency items.

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Revenues

In 2021, lease revenue increased $24.5 million, or 9.9%, due to more railcars on lease at GRE and GRI and the impact of foreign exchange rates. Other revenue increased $1.7 million, driven by higher repair revenue.

In 2020, lease revenue increased $29.2 million, or 13.3%, due to more railcars on lease at GRE and GRI and the impact of foreign exchange rates. Other revenue increased $1.2 million, driven by higher repair revenue.

Expenses

In 2021, maintenance expense increased $6.8 million, primarily due to higher wheelset costs and higher costs for other repairs, as well as the impact of foreign exchange rates. Depreciation expense increased $7.0 million, resulting from the impact of new railcars added to the fleet.

In 2020, maintenance expense increased $4.3 million, primarily due to higher wheelset costs, partially offset by lower costs for other repairs. Depreciation expense increased $8.8 million, resulting from the impact of new railcars added to the fleet.

Other Income (Expense)

In 2021, net gain on asset dispositions increased $1.5 million, attributable to higher asset remarketing gains and higher net scrapping gains. Higher net scrapping gains were positively impacted by a higher scrap price per ton in 2021. Net interest expense decreased $0.7 million, due to a lower average interest rate, partially offset by a higher average debt balance. Other income (expense) increased $8.4 million, driven by the positive impact of changes in foreign exchange rates on non-functional currency items and lower net litigation costs related to the Viareggio matter. See "Note 23. Legal Proceedings and Other Contingencies" in Part II, Item 8 of this Form 10-K for further details about the Viareggio matter.

In 2020, net gain on asset dispositions decreased $0.5 million, attributable to lower net scrapping gains. Net interest expense increased $5.3 million, due to a higher average debt balance, partially offset by a lower average interest rate. Other income (expense) increased $6.2 million, driven by the negative impact of changes in foreign exchange rates on non-functional currency items and higher net litigation costs related to the Viareggio matter, which reflected the absence of insurance proceeds received in the prior year. See "Note 24. Legal Proceedings and Other Contingencies" in Part II, Item 8 of this Form 10-K for further details about the Viareggio matter.

Investment Volume

Investment volume was $173.3 million in 2021, $216.0 million in 2020, and $215.7 million in 2019. During 2021, GRE acquired 1,131 railcars (including 335 assembled at the GRE Ostróda, Poland facility), GRI acquired 715 railcars, and Rail Russia did not acquire any railcars, compared to 2,071 railcars at GRE (including 374 assembled at the GRE Ostróda, Poland facility), 477 railcars at GRI, and no railcars at Rail Russia in 2020, and 1,417 railcars at GRE (including 384 assembled at the GRE Ostróda, Poland facility), 1,626 railcars at GRI, and 26 railcars at Rail Russia in 2019.

Our investment volume is predominantly composed of acquired railcars, but may also include certain capitalized repairs and improvements to owned railcars. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of the various car types acquired, as well as fluctuations in the exchange rates of the foreign currencies in which Rail International conducts business.

PORTFOLIO MANAGEMENT

Segment Summary

Portfolio Management's segment profit is attributable primarily to income from the RRPF affiliates, a group of 50% owned domestic and foreign joint ventures with Rolls-Royce plc (or affiliates thereof, collectively “Rolls-Royce”), a leading manufacturer of commercial aircraft jet engines. Segment profit included earnings from the RRPF affiliates of $56.5 million for 2021, $95.5 million for 2020, and $94.5 million for 2019. Financial results for 2020 included a transaction involving the refinancing and sale of a group of aircraft spare engines at the RRPF affiliates. In this transaction, the RRPF affiliates sold 21 aircraft spare engines for total proceeds of $233.0 million. GATX's 50% share of the resulting pre-tax net gains was $35.3 million. Portfolio Management did not make any

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additional investment in the RRPF affiliates in 2021, 2020, or 2019. There were no dividend distributions from the RRPF affiliates in 2021 or 2020, compared to $27.5 million in 2019.

The operating environment for RRPF continued to be challenging in 2021 due to the ongoing adverse impact of COVID-19 on air travel. RRPF continues to face pressure on both utilization and lease rates as a result of rent deferral requests that have been granted in the past, and the impact from a number of its customers having declared bankruptcy or undertaken restructuring processes. RRPF remains focused on preserving a strong liquidity position in the current environment. The risk of ongoing volatility as a result of future COVID-19 disruptions persists.

In the first quarter of 2021, GATX began investing directly in aircraft spare engines through its new entity, GEL. During the first quarter of 2021, GEL acquired 14 aircraft spare engines for approximately $352 million, including 4 engines for $120 million from the RRPF affiliates. All engines are on long-term leases with airline customers and are managed by the RRPF affiliates. Despite the ongoing adverse impact of COVID-19 on air travel, GEL was able to maintain all of its engines on lease with customers during the year.

Portfolio Management also owns marine assets, consisting of five liquefied gas-carrying vessels (the "Specialized Gas Vessels"). The Specialized Gas Vessels are utilized to transport pressurized gases and chemicals, such as liquefied petroleum gas, liquefied natural gas, and ethylene, primarily on short- and medium-term spot contracts for major oil and chemical customers worldwide. The gas shipping market continued to experience modest improvement in 2021.

In addition, Portfolio Management manages leases for third parties for which it receives management fee income and earns residual sharing income from the sale of managed assets. During 2021, Portfolio Management recorded $5.6 million of residual sharing gains on managed portfolio sales.

Portfolio Management's total asset base was $1,048.7 million at December 31, 2021, compared to $706.1 million at December 31, 2020, and $653.7 million at December 31, 2019.

The following table shows Portfolio Management’s segment results for the years ended December 31 (in millions):

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The following table shows the net book value of Portfolio Management’s assets as of December 31 (in millions):

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(1) Amounts shown represent the estimated net book value of assets managed for third parties and are not included in our consolidated balance sheets.

RRPF Affiliates Engine Portfolio Data

As of December 31, 2021, the RRPF affiliates' fleet consisted of 407 aircraft spare engines with a net book value of $4,399.9 million, compared to 445 aircraft spare engines with a net book value of $4,784.1 million at the end of 2020 and 478 aircraft spare engines with a net book value of $5,036.4 million at the end of 2019.

Engine utilization for the RRPF affiliates was 94.3% at December 31, 2021, compared to 92.8% at the end of 2020 and 96.9% at the end of 2019. Utilization is calculated as the number of engines on lease as a percentage of total engines in the fleet.

The following table shows portfolio activity for the RRPF affiliates' aircraft spare engines for the years ended December 31:

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Comparison of Reported Results

Segment Profit

In 2021, segment profit was $60.8 million compared to $77.4 million in 2020. The decrease is primarily due to lower share of affiliates' earnings at the RRPF affiliates, partially offset by higher results from our new operations at GEL and higher residual sharing gains on managed portfolio sales in the current year.

In 2020, segment profit was $77.4 million compared to $62.4 million in 2019. The increase is primarily due to higher marine operating revenue and the absence of impairment losses recognized in the prior year.

Revenues

In 2021, lease revenue was $28.1 million compared to $0.8 million in 2020, due to the addition of our GEL operations in the current year. Marine operating revenue increased $3.5 million, driven by higher utilization and charter rates from the Specialized Gas Vessels.

In 2020, lease revenue was comparable to the same period in 2019. Marine operating revenue increased $7.4 million, driven by higher charter rates and utilization from the Specialized Gas Vessels, as well as the transition to the new commercial manager in the prior year.

Expenses

In 2021, marine operating expense decreased $2.2 million, due to lower bunker fuel expense, offset by higher repairs and maintenance costs. Depreciation expense increased $12.3 million, due to the investment in new aircraft spare engines in the current year at GEL.

In 2020, marine operating expense increased $0.8 million, due to higher bunker fuel expense, offset by lower other operating expenses and management fees for the Specialized Gas Vessels.

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Other Income (Expense)

In 2021, net gain (loss) on asset dispositions was favorable by $5.8 million, largely due to higher residual sharing gains on managed portfolio sales in the current year.

In 2020, net gain (loss) on asset dispositions was favorable by $6.9 million, largely due to the absence of impairment losses recorded in the prior year for certain offshore supply vessels, as well as higher residual sharing fees from the managed portfolio.

In 2021, income from our share of affiliates' earnings decreased $39.4 million, driven by lower asset remarketing income, including $35.3 million of gains in 2020 from a transaction at RRPF involving the refinancing and sale of a group of aircraft spare engines.

In 2020, income from our share of affiliates' earnings increased $1.4 million, driven by higher net disposition gains, including $35.3 million of gains from a transaction involving the refinancing and sale of a group of aircraft spare engines. Apart from this, financial results were lower in 2020, due to the significant reduction in global air travel resulting from COVID-19.

Investment Volume

Investment volume was $353.0 million in 2021, compared to $0.5 million in 2020 and no investment in 2019. During 2021, GEL acquired 14 aircraft spare engines.

OTHER

Other is composed of Trifleet operations, as well as selling, general and administrative expenses ("SG&A"), unallocated interest expense, miscellaneous income and expense not directly associated with the reporting segments, and certain eliminations.

On December 29, 2020, GATX acquired Trifleet, one of the largest tank container lessors in the world. See "Note 4. Business Combinations" in Part II, Item 8 of this Form 10-K for additional information.

The following table shows components of Other for the years ended December 31 (in millions):

Trifleet Summary

The worldwide tank container leasing market improved throughout 2021, as demand for tank containers was strong. As a result, Trifleet experienced higher utilization of its tank containers and higher lease rates during the year. In addition, Trifleet continued to invest in new tank containers throughout the year.

Trifleet Tank Container Data

At December 31, 2021, Trifleet's owned and managed fleet consisted of approximately 20,000 tank containers compared to 19,000 at the end of the prior year. Fleet utilization was 89.2% at December 31, 2021 compared to 80.2% at the end of the prior year. Utilization is calculated as the number of tank containers on lease as a percentage of total tank containers in the fleet.

The following table shows fleet statistics for Trifleet's tank containers for the years ended December 31:

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SG&A, Unallocated Interest and Other

In 2021, SG&A of $198.3 million increased $26.3 million from 2020. The increase was primarily attributable to higher employee compensation expenses, largely due to higher share-based compensation expenses, and the inclusion of Trifleet SG&A expenses in the current year.

In 2020, SG&A of $172.0 million decreased $8.4 million from 2019. The decrease was largely due to lower employee compensation and discretionary expenses, partially offset by transaction costs associated with the Trifleet acquisition.

Unallocated interest (expense) income (the difference between external interest expense and interest expense allocated to the reporting segments) in any year is affected by our consolidated leverage position, the timing of debt issuances and investing activities, and intercompany allocations.

In 2021, other expense (income), including eliminations, of $11.0 million increased $7.9 million from 2020, driven by the write-off of unamortized deferred financing costs associated with the early redemption of debt and higher non-service pension expense, resulting from a settlement expense, both recorded in the current year.

In 2020, other expense (income), including eliminations, was comparable to the prior year.

Consolidated Income Taxes

See "Note 13. Income Taxes" in Part II, Item 8 of this Form 10-K for additional information on income taxes.

DISCONTINUED OPERATIONS

Segment Summary

On May 14, 2020, we completed the sale of our ASC business. As a result, ASC is now reported as discontinued operations, and financial data for the ASC segment has been segregated and presented as discontinued operations for all periods presented. See "Note 25. Discontinued Operations" in Part II, Item 8 of this Form 10-K for additional information. The ASC business represents the entirety of GATX's discontinued operations.

We recognized a gain of $3.3 million, net of taxes, in 2020 in connection with this sale.

In 2019, one of ASC's vessels was heavily damaged by fire during winter maintenance. As a result, the vessel was removed from service and written off. Upon final assessment of the damage, the vessel was deemed a total loss, and insurance proceeds of $27.0 million were received, resulting in a net casualty gain of $10.5 million ($8.1 million net of taxes).

The following table shows the income from discontinued operations, net of taxes (in millions):

Comparison of Reported Results

As a result of the completion of the sale in 2020, there were no operating results in 2021.

In 2020, net loss from discontinued operations, net of taxes, was $2.2 million, compared to net income of $30.4 million in 2019. The variance was driven by the timing of the sale of the ASC business in the second quarter of 2020. The net casualty gain recorded in 2019, noted above, also contributed to the variance.

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BALANCE SHEET DISCUSSION

Assets

Total assets were $9.5 billion at December 31, 2021, compared to $8.9 billion at December 31, 2020. The increase in total assets was primarily driven by the acquisition of aircraft spare engines at GEL and an increase in operating assets at Rail North America.

The following table shows total balance sheet assets by segment as of December 31 (in millions):

Gross Receivables

Receivables of $170.0 million at December 31, 2021 decreased $21.3 million from December 31, 2020, primarily due to the timing of payments by customers.

Allowance for Losses

As of December 31, 2021, allowance for losses totaled $6.2 million, or 9.0% of rent and other receivables, compared to $6.5 million, or 8.7%, at December 31, 2020. Both balances related entirely to general allowances.

See "Note 18. Allowance for Losses" in Part II, Item 8 of this Form 10-K.

Operating Assets and Facilities

Net operating assets and facilities increased $614.1 million from 2020. The increase was primarily due to investments of $1,115.2 million, including the operating assets acquired at GEL, and $86.8 million for the purchase of assets previously leased, partially offset by depreciation of $371.6 million, asset dispositions of $145.2 million, and negative foreign exchange rate effects of $117.4 million.

Investments in Affiliated Companies

Investments in affiliated companies increased $3.7 million in 2021. The increase was primarily driven by our share of earnings from the RRPF affiliates.

The following table shows our investments in affiliated companies by segment as of December 31 (in millions):

See "Note 7. Investments in Affiliated Companies" in Part II, Item 8 of this Form 10-K.

Goodwill

Goodwill decreased $20.7 million from the prior year. The decrease was primarily driven by the final adjustments recorded as part of the purchase price allocation related to the Trifleet acquisition. See "Note 4. Business Combinations" in Part II, Item 8 of this Form 10-K for additional information. The remaining changes in goodwill resulted from fluctuations in foreign currency exchange rates. We tested our goodwill for impairment in the fourth quarter of 2021, and no impairment was indicated.

See "Note 17. Goodwill" in Part II, Item 8 of this Form 10-K.

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Debt

Total debt increased $553.0 million from the prior year. Issuances of long-term debt of $1,507.4 million were offset by maturities and principal payments of $884.0 million and the effects of foreign exchange rates on foreign debt balances.

The following table shows the details of our long-term debt issuances in 2021 ($ in millions):

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(1)     Denominated in euros, but presented in U.S. dollars in this table.

(2)    In 2021, we drew $384 million on a delayed draw term loan agreement and subsequently repaid $134 million. At December 31, 2021, $250 million was outstanding.

(3)    Floating interest rate at December 31, 2021.

As of December 31, 2021, our outstanding debt had a weighted-average remaining term of 9.0 years and a weighted-average interest rate of 3.79%, compared to 8.1 years and 4.04% at December 31, 2020.

The following table shows the carrying value of our debt and lease obligations by major component as of December 31 (in millions):

See "Note 8. Debt" in Part II, Item 8 of this Form 10-K.

Equity

Total equity increased $61.8 million in 2021, primarily due to net income of $143.1 million, $28.7 million from the effects of share-based compensation, $26.7 million from the effects of post-retirement benefit plan adjustments, and $1.9 million of net unrealized gains on derivatives. These increases were offset by dividends of $73.7 million, $51.7 million of foreign currency translation adjustments due to the balance sheet effects of a stronger U.S. dollar relative to the foreign currencies in which our subsidiaries conduct business, primarily the euro, Canadian dollar, and Polish zloty, and $13.2 million of stock repurchases.

See "Note 20. Shareholders’ Equity" in Part II, Item 8 of this Form 10-K.

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CASH FLOW DISCUSSION

We generate a significant amount of cash from operating activities and investment portfolio proceeds. We also access domestic and international capital markets by issuing unsecured or secured debt and commercial paper. We use these resources, along with available cash balances, to fulfill our debt, lease, and dividend obligations, to support our share repurchase programs, and to fund portfolio investments and capital additions. We primarily use cash from operations to fund daily operations. The timing of asset dispositions and changes in working capital impact cash flows from portfolio proceeds and operations. As a result, these cash flow components may vary materially from year to year.

As of December 31, 2021, we had an unrestricted cash balance of $344.3 million. We also have a $250 million 3-year unsecured revolving credit facility in the U.S. that matures in 2024 and a $600 million, 5-year unsecured revolving credit facility in the U.S. that matures in 2026, both of which were fully available as of December 31, 2021.

The following table shows our principal sources and uses of cash from continuing operations for the years ended December 31 (in millions):

Additionally, net cash from discontinued operations, including proceeds from the sale of ASC, was $1.1 million, $254.2 million, and $(0.1) million for the years ended December 31, 2021, 2020, and 2019.

Net Cash Provided by Operating Activities

Net cash provided by operating activities of $507.2 million increased $70.4 million compared to 2020. Comparability among reporting periods is impacted by the timing of changes in working capital items. Specifically, lower cash payments for operating leases and income taxes were partially offset by higher payments for other operating expenses.

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 $1,131.9 million increased $67.9 million compared to 2020, primarily due to the acquisition of 14 aircraft spare engines at GEL and tank containers at Trifleet, partially offset by the acquisition of Trifleet in 2020 and fewer railcars acquired at Rail North America and Rail International. The timing of investments depends on purchase commitments, transaction opportunities, and market conditions.

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The following table shows portfolio investments and capital additions by segment for the years ended December 31 (in millions):

Additionally, portfolio investments and capital additions for discontinued operations were $0.0 million, $18.2 million, and $18.9 million for the years ended December 31, 2021, 2020 and 2019.

Portfolio Proceeds

Portfolio proceeds primarily consist of proceeds from sales of operating assets and finance lease receipts, as well as capital distributions from affiliates. Portfolio proceeds of $187.1 million for the year ended December 31, 2021 increased $56.0 million compared to the year ended December 31, 2020, primarily due to higher proceeds from railcar and locomotive sales at Rail North America.

The following table shows portfolio proceeds for the years ended December 31 (in millions):

Other Investing Activity

The following table shows other investing activity for the years ended December 31 (in millions):

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(1)     In 2019, we purchased 49 railcars that were previously leased.

(2)    Proceeds from sales of other assets for all periods were primarily related to railcar scrapping.

Additionally, other investing activity for discontinued operations was $0.0 million, $21.8 million, and $27.0 million for the years ended December 31, 2021, 2020, and 2019.

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Net Cash Provided by (Used in) Financing Activities

The following table shows net cash provided by (used in) financing activities for the years ended December 31 (in millions):

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(1)     In 2021, we purchased 2,329 railcars that were previously leased, compared to 732 railcars in 2020 and 157 in 2019.

(2)     During 2021, we repurchased 0.1 million shares of common stock for $13.1 million, compared to zero shares in 2020 and 2.0 million shares of common stock repurchased for $150.0 million in 2019.

Cash Flows from Discontinued Operations

The following table shows cash flow information for our discontinued operations for the years ended December 31 (in millions):

LIQUIDITY AND CAPITAL RESOURCES

General

We fund our investments and meet our debt, lease, and dividend obligations using our available cash balances, as well as cash generated from operating activities, sales of assets, commercial paper issuances, committed revolving credit facilities, distributions from affiliates, and issuances of secured and unsecured debt. We primarily use cash from operations to fund daily operations. We use both domestic and international capital markets and banks to meet our debt financing needs.

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Material Cash Obligations

The following table shows our material cash obligations, including debt principal and related interest payments, lease payments, and purchase commitments at December 31, 2021 (in millions):

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(1)     For floating rate debt, future interest payments are based on the applicable interest rate as of December 31, 2021.

(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. The amount shown for 2022 includes $1.5 million related to options we exercised to purchase 21 railcars that are currently recorded as finance leases.

In 2018, we amended a long-term supply agreement with Trinity to extend the term to December 2023, and we agreed to purchase 4,800 tank cars (1,200 per year) beginning in January 2020 and continuing through 2023. At December 31, 2021, 3,036 railcars have been ordered pursuant to the amended terms of the agreement, of which 2,280 railcars have been delivered.

In 2018, we entered into a multi-year railcar supply agreement with American Railcar Industries, Inc. ("ARI"), pursuant to which we agreed to purchase 7,650 newly built railcars. The order encompasses a mix of tank and freight cars to be delivered over a five-year period, beginning in April 2019 and ending in December 2023. ARI's railcar manufacturing business was acquired by a subsidiary of Greenbrier on July 26, 2019, and such subsidiary assumed all of ARI's obligations under our long-term supply agreement. As of December 31, 2021, 6,141 railcars have been ordered, of which 3,838 railcars have been delivered. The agreement included an option to order additional railcars subject to certain restrictions and, as of December 31, 2021, we still have the option to order 2,200 additional railcars during the remaining term of the agreement.

The following table shows our future contractual cash receipts arising from our direct finance leases and future rental receipts from noncancelable operating leases as of December 31, 2021 (in millions):

Our aggregate future contractual cash receipts at December 31, 2021 increased $234.4 million compared to December 31, 2020, primarily resulting from the impacts of our new Trifleet and GEL businesses, partially offset by lease receipts in 2021 and committed lease receipts associated with railcars sold in the current year.

2022 Liquidity Outlook

In addition to our contractual obligations, expenditures in 2022 may also include the purchase of railcars that are currently leased and other discretionary capital spending for opportunistic asset purchases or strategic investments, including direct investments in aircraft spare engines. We plan to fund these expenditures in 2022 using available cash at December 31, 2021 in combination with cash from operations, portfolio proceeds, long-term debt issuances, and our revolving credit facilities.

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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.

The following table shows additional information regarding our short-term borrowings:

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(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

During 2021, we entered into a new $600 million, 5-year unsecured revolving credit facility in the U.S., expiring in May 2026. The new credit facility contains two extension options. This replaced our prior $600 million, 5-year unsecured revolving credit facility, which was terminated upon our entry into the new credit facility. As of December 31, 2021, the full $600 million was available under this facility. Additionally, we entered into a $250 million 3-year unsecured revolving credit facility in the U.S., expiring in May 2024. This facility also has two one-year extension options. This replaced our prior $250 million 3-year unsecured revolving credit facility, which was terminated upon our entry into the new credit facility. As of December 31, 2021, the full $250 million was available under this facility.

Our European subsidiaries have unsecured credit facilities with an aggregate limit of €35.0 million. As of December 31, 2021, €19.1 million was available under these credit facilities.

Delayed Draw Term Loan

On December 14, 2020, we executed a delayed draw term loan agreement (“Term Loan”) which provided for a 3-year term loan in the aggregate principal amount of up to $500 million. Advances were allowed from December 14, 2020 through April 17, 2021 pursuant to the terms of the agreement and any amounts borrowed and repaid could not be re-borrowed. The amounts borrowed under the Term Loan agreement are required to be repaid no later than December 14, 2023. In 2021, we drew $384 million on the Term Loan, terminated the remaining unused commitment of $116 million, and subsequently repaid $134 million of the outstanding amount. As of December 31, 2021, $250 million was drawn on the Term Loan.

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Restrictive Covenants

Our credit facility and certain other debt agreements contain various restrictive covenants. See "Note 8. 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, 2021, 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.

Leverage

Leverage is expressed as a ratio of debt (including debt and lease obligations, net of unrestricted cash) to equity. The following table shows the components of recourse leverage as of December 31 (in millions, except recourse leverage ratio):

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(1)     Includes recourse debt, commercial paper and bank credit facilities, and operating and finance lease obligations, net of unrestricted cash.

(2)    Calculated as total recourse debt / shareholders' equity.

Shelf Registration Statement

During 2019, we filed an automatic 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, including standby letters of credit, performance bonds, and guarantees 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.

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The following table shows our commercial commitments at December 31, 2021 (in millions):

We are parties to standby letters of credit and performance bonds, which primarily relate to contractual obligations and general liability insurance coverages. No material claims have been made against these obligations, and no material losses are anticipated. We also guarantee payment by an affiliate for final settlement of certain derivatives if they are in a liability position at expiration. The amount of the payment is ultimately determined by the value of the derivative upon final settlement.

Defined Benefit Plan Contributions

In 2021, we contributed $4.2 million to our defined benefit pension plans and other post-retirement benefit plans. In 2022, we expect to contribute approximately $18.5 million. As of December 31, 2021, our funded pension plans in the aggregate were 106.6% funded. 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.

GATX Common Stock Repurchases

On January 25, 2019, our board of directors ("Board") approved a $300.0 million share repurchase program, pursuant to which we are authorized to purchase shares of our common stock in the open market, in privately negotiated transactions, or otherwise, including pursuant to Rule 10b5-1 plans. The share repurchase program does not have an expiration date, does not obligate the Company to repurchase any dollar amount or number of shares of common stock, and may be suspended or discontinued at any time. The timing of share repurchases will be dependent on market conditions and other factors. During 2021, we repurchased 0.1 million shares of common stock for $13.1 million, excluding commissions, compared to zero shares repurchased in 2020 and 2.0 million shares repurchased for $150.0 million, excluding commissions, in 2019. As of December 31, 2021, $136.9 million remained available under the repurchase authorization.

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.

Operating Assets

We state operating assets, including assets acquired under finance 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 30 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 finance lease. Our lease classification analysis relies on certain assumptions that require 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 could change the impacts of the lease transactions on our results of operations and financial position. See "Note 6. Leases" in Part II, Item 8 of this Form 10-K.

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Impairment of Long-Lived Assets

We review long-lived assets, such as operating assets, right-of-use 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 by which 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 10. 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 7. Investments in Affiliated Companies" and "Note 10. 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 performed is a two-tiered approach and requires us to make certain judgments to determine the assumptions we use in the calculation. We first complete a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit exceeds its carrying value. If necessary, the fair value is then compared to its carrying value, including goodwill. When estimating the fair value of the reporting unit, we use a discounted cash flow model and base our estimates of future cash flows on revenue and expense forecasts and include assumptions for future growth. We also consider observable multiples of book value and earnings for companies that we believe are comparable to the applicable reporting units. If the estimated fair value is less than the carrying amount, we record an impairment loss for the difference. See "Note 17. 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 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 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 11. Pension and Other Post-Retirement Benefits" in Part II, Item 8 of this Form 10-K.

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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 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 12. Share-Based Compensation" in Part II, Item 8 of this Form 10-K.

Income Taxes

Our operations are subject to taxes in the United States, 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.

We expect to continue to reinvest foreign earnings outside the United States indefinitely. If future earnings are repatriated to the United States, or if we expect such earnings to be repatriated, a provision for additional taxes may be required. Under provisions of the territorial tax system, repatriated earnings are generally exempt from United States income taxation, however, incremental income taxes may occur from withholding taxes, foreign exchange gains, or other taxable gains recognized in connection with tax basis differences in our 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 13. Income Taxes" in Part II, Item 8 of this Form 10-K.

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

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

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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):

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(1)    Net gain from insurance recoveries for storm damage to a maintenance facility at Rail North America.

(2)    Write-off of unamortized deferred financing costs associated with the early redemption of our $150 million 5.625% Senior Notes due 2066.

(3)    Deferred income tax adjustment due to a reduction of the corporate income tax rate enacted in Alberta, Canada in 2019.

(4)    Deferred income tax adjustments due to an enacted corporate income tax rate increase in the United Kingdom in 2021 and the elimination of a previously announced corporate income tax rate reduction in the United Kingdom in 2020.

(5)    Net casualty gain attributable to insurance recovery for a vessel at ASC.

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(1)    Shareholders' equity used in this calculation excludes the increases resulting from the impact of the Tax Cuts and Jobs Act of 2017.

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